What is a 'Negotiation'

A negotiation is a strategic discussion that resolves an issue in a way that both parties find acceptable. In a negotiation, each party tries to persuade the other to agree with his or her point of view.

In advance of the negotiation, participants learn as much as possible about the other party's position, what the strengths and weaknesses of that position are, and how to prepare to defend their positions and counter the arguments the other party will likely make.

BREAKING DOWN 'Negotiation'

Many offers that people assume to be firm and final are actually flexible. For example, negotiation can be used to reduce debts, to lower the sale price of a house, to get a better deal on a car or to improve the conditions of a contract. Negotiation is an important skill when accepting a new job.

Often, the employer's first compensation offer is not a company's best offer, and the employee can negotiate for higher pay, more vacation time, better retirement benefits and so on. Negotiating a job offer is particularly important because all future increases in compensation will be based on the initial offer.

Key Factors in Negotiation

There are understood to be seven elements or factors that come into play in successful negotiations:

  • Who are the parties in the negotiation and what are their interests are? What is the background of all involved and how does that affect their position in the discussion?
  • What is the relationship of the parties and their intermediaries in the negotiation? How are the parties connected and what role does that play in the terms of the negotiation process?
  • How will the needs of the parties involved be best communicated in order to secure their agreements through negotiation? What is the most effective way to convey the desired outcomes and needs? How can the parties be certain they are being heard?
  • Are there any alternatives to what either party initially wants? If a direct agreement is not possible, will the parties need to seek substitute outcomes?
  • What options may be possible to achieve an outcome? Have the parties expressed where there may be flexibility in their demands?
  • Are what each party requests and promises legitimate? What evidence do the parties offer to substantiate their claims and show their demands are valid? How will they guarantee they will follow through on the results of the negotiation?
  • What is the amount of commitment required to deliver the outcome of the negotiations? What is at stake for each party, and do the negotiations consider the effort that will need to be made to achieve the negotiated results?
RELATED TERMS
  1. Negotiated Sale

    A negotiated sale is when the issuer and an underwriter negotiate ...
  2. Negotiated Underwriting

    In negotiated underwriting, both the purchase price and the offering ...
  3. Third Party Beneficiary

    A third party beneficiary is a person who will benefit from a ...
  4. Party Wall

    In real estate, a party wall is a shared wall that separates ...
  5. Zone Of Possible Agreement

    Not a physical place, the zone of possible agreement is considered ...
  6. Demand Guarantee

    A demand guarantee is a form of protection for a contract that ...
Related Articles
  1. Managing Wealth

    The layoff payoff: A severance package

    If you must leave your job, go out fighting for the best benefits you can get.
  2. Personal Finance

    7 Tips For The Do-It-Yourself Debt Manager

    Hired gun not in your budget? Learn to be your own credit counselor.
  3. Personal Finance

    7 Tips For Getting The Salary You Deserve

    We teach you how to figure out the salary you should be making, and then how to get it.
  4. Personal Finance

    Refinance Vs. Debt Restructuring: What's Best For Your Credit Score?

    Discover key differences between refinancing and restructuring debt in regard to terms, the negotiation process and effect on credit scores.
  5. Personal Finance

    Debt Settlement: A Guide for Negotiation

    Negotiating a settlement should encourage everyone to try, find out how you can negotiate your way to a lower debt load by paying up front.
  6. Trading

    An Overview Of Futures, Derivatives, and Liquidity

    Gain an understanding of futures and derivatives, and how these instruments are meant to mitigate market risk.
  7. Insights

    Tea Party Vs. Republican Party: Who Will Win In 2016?

    What agendas define the rift between the Tea Party and the Republican establishment, and which side will win the presidential nomination in 2016?
  8. Managing Wealth

    How Do Futures Contracts Work?

    Futures contracts are one of the most important financial innovations in history, but they are often misunderstood. Find out how this contract is used to transfer risk between different parties. ...
  9. Insights

    Brexit: Europe Moves From What If To What Now?

    What lies ahead, who will be the new leader of the Tories, and what about Article 50?
  10. Financial Advisor

    6 Reasons Healthcare Is So Expensive in the U.S.

    Here's why America's healthcare still ranks low among developed countries.
RELATED FAQS
  1. How do you make working capital adjustments in transfer pricing?

    Understand how working capital adjustments are applicable to transfer pricing. Learn about the arm's length standard and ... Read Answer >>
  2. How do currency swaps work?

    Learn how a currency swap works, including who uses these transactions, and the mechanics and purpose of the different cash ... Read Answer >>
Trading Center