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. By negotiating, all involved parties try to avoid arguing but agree to reach some form of compromise.

Negotiations involve some give and take which means one party will always come out on top of the negotiation. The other, though, must concede—even if that concession is nominal.

Parties involved in negotiations can vary. They can include talks between buyers and sellers, an employer and prospective employee, or between the governments of two or more countries.

How Negotiations Work

Negotiations involve two or more parties who come together to reach some end goal through compromise or resolution that is agreeable to all those involved. One party will put its position forward, while the other will either accept the conditions presented or counter with its own position. The process continues until both parties agree to a resolution.

Participants learn as much as possible about the other party's position before a negotiation begins including what the strengths and weaknesses of that position are, how to prepare to defend their positions, and any counter-arguments the other party will likely make.

The length of time it takes for negotiations to take place depends on the circumstances. A negotiation can take as little as a few minutes, or, in more complex cases, much longer. For example, a buyer and seller may negotiation for minutes or hours for the sale of a car. But the governments of two or more countries may take months or years to negotiate the terms of a trade deal.

Some negotiations require the use of a skilled negotiator such as an advocate, a real estate agent/broker, or an attorney.

Where Negotiations Take Place

Many people assume that prices and offers are firm and final. But that's not necessarily true. In fact, many are actually flexible. Negotiating can be a way to come to agreements in a variety of areas: To reduce debts, to lower the sale price of a house, to improve the conditions of a contract, or to get a better deal on a car.

Say you want to buy a brand new SUV. The negotiation process usually begins between you and the salesperson with the manufacturer's suggested retail price (MSRP). This is the price the producer recommends the dealership used to sell the SUV. What many people don't know is that most dealerships typically sell below the MSRP—unless the make and model are very popular. You may approach the dealer with an offer below this price—one that the dealership may accept or counter. If you have good negotiating skills, you may be able to drive away with a great deal, even lower than the vehicle's invoice price. This is the price the manufacturer actually charges the dealer.

Negotiation is also an important skill when accepting a new job. The employer's first compensation offer is often not a company's best offer, and the employee can negotiate different terms such as 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 Takeaways

  • A negotiation is a strategic discussion that resolves an issue in a way that both parties find acceptable.
  • Negotiations can take place between buyers and sellers, between an employer and prospective employee, or between the governments of two or more countries.
  • Negotiating can be a way to come to reduce debts, to lower the sale price of a house, to improve the conditions of a contract, or to get a better deal on a car.
  • Things to consider before and during negotiations include justifying your position, putting yourself in the other party's shoes, keeping your emotions in check, and knowing when to walk away.

Key Factors in Negotiation

When it comes to negotiation, there are some key elements or factors that come into play if you're going to be successful:

  • Who are the parties in the negotiation and what are their interests? What is the background of all involved and how does that affect their position in the discussion?
  • What is the relationship between 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?

Tips in Negotiating

Not everyone has the skills needed to negotiate successfully. But there are a few things you can do to better help you make your position known:

  • Justify your position. Don't just walk into negotiations without being able to back up your position. Come armed with some information to show that you've done your research and you're committed to the deal.
  • Put yourself in the other party's shoes. There's nothing wrong with sticking to your ground. But while you shouldn't go over your limitations—such as spending more money if you're buying a home or car—remember that the other party has its own restrictions as well. There's nothing wrong with trying to see things from the other person's perspective and why they may not accept your offer.
  • Keep the emotion out. It's easy to get caught up and be swayed by your personal feelings, especially if you're really vested in the outcome. The best thing to do is to keep your emotions in check before you start negotiating.
  • Know when to stop the negotiation. Before you start negotiating, it's a good idea to know when you'll walk away. There is no use trying to get the other party to see where you stand if the talks aren't moving forward.

When Negotiations Don't Work

Even the best negotiators have difficulty at some point or another to make things work. After all, the process requires some give and take. Perhaps one party just won't budge and doesn't want to give in at all. There may other issues that stall the negotiation process including a lack of communication, some sense of fear, or even a lack of trust between parties. These obstacles can lead to frustration and, in some cases, anger. The negotiations may turn sour, and ultimately lead parties to argue with one another.

When this happens, the best—and sometimes only—thing the parties can do is to walk away. Taking yourself out of the equation gives everyone involved a chance to regroup, and it may help both of you come back to the bargaining table with a cool and fresh mind.