Save Money: Haggling and Lowballing

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FEW things suck more than that feeling you get when you overpaid for something. After all, it’s not easy to make money in this economy – I would actually argue that it’s easier to save money than it is to make money. Therefore, what can you do to get the maximum value for your dollar – what can you do to stretch that dollar as far as possible? I’ll focus on the activity known as haggling, or sometimes known derisively as lowballing.

Haggling, as defined by Wikipedia, is when “the buyer and seller of a good or service debates the price and exact nature of a transaction.” Translated into plain English, it’s the process by which you and the potential seller agree how much their stuff is worth. However, in America, haggling has become a forgotten and lost art. Go to any grocery store and the price is often set on the shelf – you can pay it or leave it. However, in almost every other country across the world, haggling is commonplace and in some cultures, failure to haggle is seen as rude, a sign of economic arrogance, or even an insult.

To be fair, we are limited in America to what we can haggle on – one-time or expensive items such as cars, houses, and jewelry or sometimes in more informal settings such as yard sales and flea markets. Even so, there is a significant opportunity for you to save lots of money. For this post, I’ll describe the strategies I use to get the lowest price possible for a car, although the same principles can be used in buying almost anything, from clothing to furniture to appliances to houses.

Outline:
1) Before You Haggle
2) During Haggling
3) When The Seller Says “No”

Before You Haggle
Determine what your price range is, and don’t go a single dollar over it. A helpful example of this is to find out what the Kelley Blue Book value of the car is. Do this before you even talk to the seller for the first time.

When you talk to the seller, don’t even talk turkey within the first fifteen minutes of meeting them. Get some background, dicker around a bit, find a few things in common – whether it’s cars, work, church, friends, or hobbies. Spend the time while you’re talking about the car to inspect for obvious defects or parts that need replaced. Eventually, turn the subject of the conversation around to the car itself. It’s important to find out how motivated the seller is.

1) Why is the car being sold? Ask the seller this question, even if you can determine the reason from reading the ad. This is one of the most important considerations to make, as it dictates how much room for haggling you have. Moreover, getting a conversation going with the seller is important to build rapport and allow you to negotiate later. A few thoughts on the seller’s motivation and pricing to consider:
– A car with a lot of sentimental value (first car, long time owner, first owner, etc.) is likely going to command a premium over the blue book value.
– On the other hand, sellers of cars on behalf of relatives or inlaws (especially deceased ones or estate sales) are likely to be more negotiable.
– Similarly, look for sellers who recently upgraded to a new car and who are simply looking to get the old car out of the driveway. Distinguish this, however, from the seller who needs to upgrade (such as for a growing family) and hasn’t bought the new car yet – that seller needs the money so he or she can buy the next car.
– Another excellent candidate for haggling is if there’s some external pressure on the seller – if bills need to be paid, they are moving, or a significant other demands the car be removed from the property.

2) How long has the seller’s ad been posted? The longer the ad has been posted, whether in the newspaper or especially online, the more likely the seller is going to want the car gone. A good sign of a motivated seller is if the price has been reduced recently.

3) Is there anything wrong with this car? It’s a used car – odds are there’s something currently broken. If not, then something is likely going to be broken very soon. It may be advisable to have a third party mechanic inspect the car and report to you. Test drive the car, have the house inspected, run the appliances before buying them. Bald tires, poorly aligned steering, broken window motors, and A/C that isn’t blowing cold are nuisances – but they are likely fixable, are not deal breakers, and you should certainly factor the cost of repairs into your offer.

Even if you’re not mechanically inclined, research that car’s common issues and be prepared to ask about them. As an example, every GM 3.8 liter engine built between 1995 and 2005 will need the intake gasket replaced, because GM made the gasket out of plastic. Unfortunately for these cars, GM’s antifreeze, Dexcool, eats plastic. If it’s not replaced with an aluminum intake gasket, the gasket will eventually fail and antifreeze will get mixed with the oil, and then the engine locks up. Replacing the intake gasket requires tearing off the top half of the engine to get to it… an expensive repair that will run you about $300 if you do it yourself… and upwards of $1,200 at a shop.

Guess what, factor that into the price of the car. The same can be said about a house or other large purchase if you notice an obvious defect in the house – the roof needs replaced, the appliances are dated, the water heater is broken, etc… those are nuisances but not dealbreakers… lower your offer accordingly.

When You Haggle – A Step by Step Primer in Lowballing
First off, bring cash to the meeting. Bring a friend if you feel unsafe having large amounts of cash in your pocket, but don’t bring a cashier’s check, a personal check, a money order, or anything like that. Those will do nothing to help your negotiating position. Plus, bring a friend so he or she can play good cop/bad cop once you get deep into negotiation.

For this hypothetical, assume that the seller is selling a car for $3,000, but your budget is more like $2,000.

1) The first thing you need to determine is what the seller’s asking price is. Typically in a car or house advertisement (such as Craigslist), the seller makes the first move.
– If the seller hasn’t yet disclosed the price but instead says “Make an offer,” wait him out and politely keep angling for his first asking price. This is important as you don’t want to overpay but also you don’t want to make an offer so low that the seller is insulted and simply walks away.

2) Regardless of what the seller’s asking price is, ask the seller if there is room for negotiation. Communicate that you’re interested in buying the car. If you’ve done your research correctly and have gotten to this stage, you’ve found a motivated seller. If you come off as a motivated buyer too, they are more likely to work with you on the price. Always, always emphasize that you have cash in your pocket and can make a deal today. For instance, you might say the following:
“I’m a student at XYZ school… my budget is pretty limited. I’m prepared to offer cash today, but do you have any room to wiggle on the price?”
“I’ve had a bit of crunch lately with bills and such. But I have cash… is there any room for negotiation?”

2a) A variation on this is if you discover an issue with the car. This is where you bring up anything you discovered on the test drive.
“I noticed the intake gasket hasn’t been replaced… you can see it here. At a shop the job would cost about $1,200 to do. In light of that, do you have any room to negotiate?”
“The tires are getting pretty bald… I’m not sure they’ll make it through the winter.”
“This car has three broken window motors. It’s about $100 each to replace them if I do it myself…”

3) Give the seller a chance to make you a better offer. Let the seller be the first to move down from his asking price… he’s serving your purpose when he does. It’s not guaranteed the seller will lower the price, but the worst he will do is stand firm on his asking price, or invite you to make a move.
“Yeah, I listed it online for $3,000. Maybe I could do $2,500, since this does need to be fixed.”

4) Make your first offer, but phrase it using the Overton window. The Overton Window is a phrase borrowed from political scientists – it’s the tactic by which a politician achieves a policy agenda that may seem repugnant or otherwise out of the mainstream. It’s a two-step process.
– First state a position that is outrageous or otherwise completely unacceptable – a position that is more outrageous than the one you’re trying to advance.
– Once rebuked from that position, “moderate” your position by shifting towards what you actually want to achieve. In the public discourse, that “moderated” position no longer seems to be so repugnant, especially since you had just advocated for a more extreme one not too long ago. That “moderated” position is the one you can now advance with greater credibility, since people are no longer as shocked by it.

The same applies to a sale. Pull out a wad of cash from your pocket in the amount that you know will be rejected. But then begin talking – and reject your own offer, and make a second offer before the seller can even say anything.
– “I was initially going to offer $1,500 cash. But I do like this car, and I’d like to move up to $1,600.”

Having the wad of cash in your hand – and in plain view of the seller – shows the seller that you’re serious. You’ve presented the seller with a dilemma – you’ve given him the dreaded “lowball” offer, but you’re prepared to make this deal today. You stand in sharp contrast to the people who flake out on the seller.

5) The seller is likely to counter-offer somewhere between your second offer (from stage #4) and his asking price (stage #3).
“Is there any way you can do better than that? I was expecting to get $2,500… can you do $2,300?”

6) Move up slightly again from $1,600. Remember, your budget from the beginning of this hypothetical was $2,000, and now you’ve got some room to work. Communicate to the seller that you can go slightly higher, but it would be difficult to do so – and you’d be stretching your budget.
“Well, I’ll tell you what… I have the $1,500 on me right now. If you can make a deal today, I can go into town and go to an ATM and get another $300. I can do $1,800 right here.”

7) The seller will try to get you to move up from $1,800. Now it’s your turn to stand firm.
“I mean, the bank only lets me withdraw $300 a day… That’s not me, that’s the bank.”

8) The seller will most likely waffle a bit at this point, probably shake his head and say:
“Screw it. If you have the cash on you, let’s do it.”

In that case, you win! You’ve just bought a car for more than a third less than the seller’s asking price. That, friends, is the art of successfully lowballing the seller and getting a great deal.

***

When The Seller Says No to $1,800
9) There’s the distinct possibility that a seller will not accept the $1,800. At this point, you have to ask yourself if you’re willing to go any higher. You have one more card to play. This is where your friend comes in – you can ask the friend if he or she is willing to spot you some cash.
“Hey, can you spot me…?”
“Yeah, I can spot you another $200 or so.”
“Okay, I guess with all of that, I can go up to $2,000.”

At this point, you’ve communicated to the seller that you’re out on a limb to make the deal – and the seller’s going to have a hard time saying no to a big wad of cash. If you’ve played it right, you’ve found a motivated seller – and you sound like a motivated buyer. If the buyer accepts at this point, guess what… you’ve still knocked a third off the seller’s asking price.

Moreover, if you really want to put on a show for the seller – advise your friend ahead of time that you’ll be doing this, so he or she can play along. Tell them you’ll be asking them for money if push comes to shove and you’re on the verge of losing the deal.

For a real piece of chutzpah, bring the extra money along for the negotiation – but don’t show it to the seller! Make sure the “extra” money is in $20’s. And play the part if you told the seller you had to go into town to find an ATM and get more money – go into town all right, but get yourself an Ale-8-1 at the nearest gas station instead! It’ll give the seller the impression you actually drove into town to get the money.

When The Seller Says No to $2,000
Guess what, that’s still a possibility, because you are offering significantly less than the seller’s asking price. But relax. It’s not the end of the world. Just say the following and walk away:
“OK, I’m sorry we can’t seem to come to a deal today. It’s what I’ve got… You’ve got my number. The offer will be good for a couple more days, give me a call if you change your mind.”

Put your money back in your pocket and begin walking away. The act of putting the money away has a powerful effect on the seller, and that may cause the seller to waver, say “Screw it,” and make the deal.

***

In my next post, I’ll tell you what to do when confronted with a stonewalling seller and other various things that unwilling sellers will say in response to your lowball offer… and how to keep from getting lowballed yourself!

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