The upcoming negotiation process with Absentia Ltd. must not be equal or worse than Grouse’s offer. The latter company is offering of total present values equal to $17.5 to 19.5 million and the upfront $7.5 million in cash. Therefore, Grouse’s offer can be considered to be the best alternative to a negotiated agreement (BATNA) because the other two offers provide a lower yield. In addition, it is important to consider the fact that Grouse is a nationally known real estate developer, whereas Absentia is relatively unknown, which reduces the overall reliability. It is stated that value congruence has a greater effect on reservation price than trust (Cazier et al., 2017). In other words, the overall trustworthiness cannot be factored-in during the negotiation process, where the reservation price must be equal to $20 million of the total value. However, the target price will be equal to $22-25 million, depending on the amount of cash offered. The latter is the preference of the shareholders. The negotiation will be immediately terminated if the House will be used for commercial purposes.
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The main issues are the purpose of the purchase, reputational influence, total value, and the cash amount. As was stated before, the House can only be used for residential purposes, and thus, the only offer which will be discussed with shareholders is if the total value will be equal to $40 million. This highly unlikely offer needs to be discussed with shareholders. If the offer preserves the overall reputation and dignity of the House better than Grouse, the value must not be lower than $20 million. Lastly, if the offer will be similar to Grouse’s in terms of reputation preservation, then it needs to offer more cash than BATNA. In addition, it is stated that power has a positive effect on value claiming (Schaerer et al., 2020). The main source of power is Grouse’s offer or BATNA, which will allow terminating the negotiation if the mentioned conditions are not met. The opponent’s source of power comes pitching a better strategy for reputational preservation, which might sound appealing without proper analysis. In order to neutralize it, a thorough discussion of the exact steps must be conducted.
- Cazier, J., Shao, B., & Louis, R. S. (2017). Value congruence, trust, and their effects on purchase intention and reservation price. ACM Transactions on Management Information Systems, 8(4), 1-28.
- Schaerer, M., Teo, L., Madan, N., & Swaab, R. I. (2020). Power and negotiation: Review of current evidence and future directions. Current Opinion in Psychology, 33, 47-51.