Questions

1. Why did Prasad succeed in getting more that what he aspired for?
2. What could Paresh Shah have done to close the deal at Rs. 1.50 crores or less?

Banyan House
The following case study is mostly make-believe; one might speak of it as an armchair case. It involves a professor
of business well call him Prasad who was quite knowledgeable about finance but not a practitioner of the art
and science of negotiation. Well use the case to get a handle on the distributive part of negotiation to build
vocabulary and analytic concepts and maybe come to a few prescriptive conclusions.

The Problem and the opportunity

Prasad was on the governing board of Banyan House, a halfway house for young men and women aged
eighteen to twenty-five who needed professional guidance and the support of sympathetic group to
ease their transition from metal institutions back to society. Many in the house had had nervous breakdowns, or were borderline schizophrenics, or were recovering from unfortunate experiences with drugs.
Located on the outskirts of Mumbai in the industrial township of Vasai, Banyan House accommodated
about twenty residents. The neighborhood was in a transitional stage; some said that it would
deteriorate further, others that it was on the way up. In any case, it did not provide an ideal
recuperative setting because of its noise and disrepair. Although the house was small and quite run
down, the lot itself was extensive, consisting of a full acre of ground. Its stand of banyan trees, once
magnificent, had succumbed to disease.
The governing board, through a subcommittee, had earlier investigated the possibility of moving Banyan
House from Vasai to a quieter, semi-residential community. Other suitable houses were located in the
nearby areas of Virar, and Palghar, but the costs were prohibitive and the idea of moving was reluctantly
dropped.
Some months later, a Mr. Paresh Shah approached Banyans director, Mrs. Kulkarni, who lived in the
house with her husband and child. Shah indicated that his firm, a combined architectural and
developmental contractor, might be interested in buying the Banyan property. This was out of the blue.
No public announcement had ever been made that Banyan House was interested in a move. Mrs.
Kulkarni responded that the thought had never occurred to her, but that if the price were right, the
governing board might consider it. Shah gave Mrs. Kulkarni his card and said that he would like to
pursue the topic further if there were a chance for a deal.
Even simple-looking decision can be deceptively complex. For example, should Mrs. Kulkarni let on that
Banyan might welcome the opportunity to move? On the one hand, she would like to affect Shahs
aspiration level implying that hell have to pay a high price. On the other hand, she would also like to
develop a positive relationship with him, if only for the duration of this negotiation. Revealing her sides
desires, especially when it may be against her interest, might inspire trust and raise his degree of
concern over the outcome for entrance. There is also the risk that Shah is a more casual buyer, and
might easily walk away if discouraged.
What would you do?

PGPM

Case 1

2
The governing board asked Prasad to follow up on this promising lead. The other board members
included a local priest and prominent individuals in clinical psychology, medicine, and vocational
guidance; none besides Prasad had any feeling for business negotiations of this kind. Since they fully
trusted Prasad, they essentially gave him carte blanche to negotiate. Of course, no legal transaction
could be consummated without the boards formal approval.
What advice would you give Prasad?
Prasad sought my advice on how he should approach Mr. Shah, and we decided that an informal phone
call was in order. In the course of the call, Prasad accepted an invitation to discuss possibilities over
coffee at a nearby coffee shop located in a plush hotel. He decided not to talk about any money matters
at that first meeting just to sound out Shah and find out what he might have in mind. He insisted, I
think rightly, on paying his own bill. I assured him that he also did rightly in not even hinting to Shah that
the governing board was looking for other locations.
On the basis of that first meeting and some outside probing into Shahs business affiliations, Prasad
ascertained that Shah was a legitimate businessman of decent reputation. Prasad thought that Shahs
company wanted the Banyan property as a possible site for a condominium project. Shah wished to talk
money matters right away, but Prasad needed a couple of weeks to prepare for negotiations. He used
the excuse that he needed the approval of the governing board before he could proceed to serious
negotiations.
Are such strategic misrepresentations of the truth an acceptable mode of behavior?
Given that Prasad has two weeks to prepare, what should he do?
Preparing for Negotiation
What kind of information should Prasad look for in advance of negotiations?
Gathering Information
During the next twelve days, Prasad did a number of things.
First, he tried to ascertain Banyans reservation, or walk-away price (RP) that is, the minimum price
that Banyan House, the seller, could accept. The reservation price was difficult to determine, because it
depended on the availability of alternative sites to relocate. Prasad learned that of the other sites that
had previously been located, the one in Dahisar was no longer available, but the other two, in Palghar
and in Vapi, were still possibilities for the right price. Prasad talked with the owners of those sites and
found out that the Palghar property could be had for about Rs. 1.05 crores and the Vapi property for
about Rs 1.45 crores.
Prasad decided that Banyan House would need at least Rs 1.25 crores before a move to Palghar could be
undertaken and that it would need Rs. 1.75 crores to justify a move to Vapi. These figures took into
account the cost of moving, minor repairs, insurance.

PGPM

Case 1

3
The Vapi site (needing Rs. 1.8 crores) was much better than the Palghar site (needing Rs. 1.25 crores),
which in turn was better than the site at Banyan. So Prasad decided that his reservation price would be
Rs. 1.25 crores. He would take nothing less, and hope to get more possibly enough more to justify the
Vapi alternative. This bit of research took about six hours, or a couple of evenings work.
Meanwhile Prasads wife, Kumud, contacted several realtors in the hope offinding other locations
Banyan could consider. There were a few nibbles, but nothing definite turned up.
Prasad next investigated what Banyan House would bring if sold on the open market. By examining the
sale prices of houses in the vicinity and by talking to local realtors and real estate experts, he learnt that
the Banyan property was probably worth only about Rs.75 lakhs. He felt that if sold without Shah in the
picture, the house would go for between Rs. 60 80 lakhs and it was just as likely to go below Rs. 60
lakhs as above Rs. 80 lakhs. How disappointing!
What was the story from Shahs perspective?
It was difficult for us to make judgments about the buyers RP that is, the maximum price that Shah
would be willing to offer before he definitely would break off negotiations, not temporarily for strategic
purposes, but permanently. Neither Prasad nor I had any expertise in the matter. We went for advice to
a number of real estate experts and queried two contractors in the Vasai area.
Our experts did not agree with one another, but they all took our questions about reservation price
seriously; we were convinced that they understood our problem. A lot, we were told, depended on the
intention of the developers. How high a structure would they be permitted to build on the site? Were
they buying up other land as well?
Prasad found out that the answer to the latter questions was yes. The matter turned out to be much
more involved than Prasad or I had imagined it would be. After ten hours of his time and five hours of
my time, we decided that we were hopelessly vague about our assessment of Shahs reservation price.
As of two days before the start of real negotiations, Prasad would have bet even money that Shahs RP
lay in the interval from Rs. 1.50 to 4 crores.
How should Prasad conduct the talks? Where should he hold them?
Preparing a Strategy
After all this preparation, Prasad and I discussed his negotiation strategy. It had already been decided
that the meeting would be at a nearby hotel lobby coffee shop where they had met earlier.Prasad and I
had no objection to this venue; the dining Room of Banyan House would be have been too hectic, and
his own university office inappropriate.
Who should come?Feeling that he needed someone at the discussions to advise him on legal details,
Prasad decided to invite Milind Gupte, a Mumbai lawyer and former member of Banyan Houses
governing board. Gupte agreed to participate, and Prasad reserved two hours to brief him prior to the
meeting.

PGPM

Case 1

4
We also thought it might be a good idea for Prasad to bring along Mrs. Kulkarni. She was the person who
was most knowledgeable about Banyan House, and perhaps an appeal to Shahs social conscience might
help. It was agreed that Prasad alone would talk about money matters. Mrs. Kulkarni would talk about
the important social role of halfway houses and to argue that it did not make sense for Banyan House to
move unless a substantial improvement in the surrounding amenities would result: You know how
hard it is on youngsters to move from one neighborhood to another. Just think how severe the effects
will be on the young residents of Banyan House. Mrs. Kulkarni actually did have conflicting feeling
about moving, and it would be easy for her to marshal arguments against a move.
What should his opening tactics be?Who should start the bidding first?
If Shah insisted that Prasad make the first offer, what should that be? If Shah opened with X lakhs
ofrupees, what should Prasads counteroffer be? How far could this be planned in advance? Were there
any obvious traps to be avoided?
Prasad and I felt that our probabilistic assessment of Shahs RP was so broad that it would be easy to
make a mistake by having our first offer fall below his true reservation price. But if we started with a
wildly high request like Rs. 5.5 crores way over what we would settle for it might sour the
atmosphere.
Prasad decided to try to get Shah to move first; if that did not work and if he was forced to make the
first offer, he would use a figure of Rs. 4.75 crores, but he would try to make that offer appear very
flexible and soft.
Prasad thought of opening with an offer of Rs. 3.5 crores and holding firm for a while, but we felt there
was a 40 percent chance that this amount would be below Shahs RP. If Shah moved first, Prasad would
not allow him to dwell on his offer but would quickly try to get away from that psychologically low
anchor point by promptly retorting with a counteroffer of, say, Rs. 3.75 crores.
I told Prasad that once two offers are on the table one for each party the final pint of agreement can
reasonably be predicted to fall somewhere close to midway between those extremes. So if Shah offered
Rs. 1.20 crores and if Prasad came back with Rs. 3.60 crores, a reasonable bet would be a settlement of
Rs. 2.4 crores provided, of course, that that midway figure fell within the zone of possible agreement
(ZOPA), the range between Prasads (the sellers) true RP and Shahs (the buyers) true RP.
For starters, Prasad though that it would be nice if he could get Rs. 2.00 crores from Shah, but of course
Prasad realized that his own RP was still Rs. 1.25 crores.
We talked about the role of time.
What if Shahs most recent offer was above Rs. 1.5 crores? Should Prasad be willing to bluff and make a
show of walking away from the bargaining table even though the offer is better than his reservation
value? If Shah didnt call back with a better offer, Prasad could say that the Banyan board had
reconsidered. I reminded Prasad that there is no objective formula for this. He would be confronted
with a standard decision problem under uncertainty, and his assessment of Shahs RP could be better

PGPM

Case 1

5
evaluated after sounding out Shah than it could be with present information. The danger in breaking off
negotiations and lot depends on how theyre broken off was that Shah might have other
opportunities to pursue at the same time.
Opening Gambits
As it turned out, the first round of negotiations was, in Prasads view, a disaster, and afterward he
wasnt even sure that there would be a second round. Mrs. Kulkarni played her part admirably, but to no
avail; it seemed unlikely that Shah would raise his offer to Banyans reservation price.
After preliminary pleasantries and some posturing, Shah said, Tell me the bare minimum you would
accept from us, and Ill see if I can throw in something extra.
How should Prasad respond?
Prasad expected that gambit, and instead of outright misrepresentation, he responded, Why dont you
tell us the very maximum that you are willing to pay, and well see if we can shave off a bit.
Luckily, Shah was amused at that response. He finally made his opening offer at Rs. 75 lakhs, but first
bolstered it with a lot of facts about what other property was selling for in that section of Vasai.
Prasad immediately responded that Banyan House could always sell its property for more money than
Shah was offering, and that it did not have the faintest intention of moving. They would consider moving
only if they could relocate in a much more tranquil environment where real estate values were high.
Prasad claimed that the trouble of moving could be justified only by a sale price of about Rs. 3.5 crores,
and Mrs. Kulkarni concurred. Prasad chose that Rs. 3.5 crore figure keeping in mind that the midpoint
between Rs. 75 lakhs and 3.5 crores was above his aspiration level of Rs. 2 crores.
Shah retorted that prices like that were out of the question. The two sides jockeyed around a bit and
decided to break off, with hints that they might each do a bit more homework.
Where should Prasad go from here?
Prasad and I talked about how we should reassess our judgmental distribution of Shahs RP. Prasad had
the definite impression that Rs. 3.5 crore was really well above Shahs RP, but I reminded him that Shah
was an expert and if his RP were above Rs. 3.5 crore he would want to lead Prasad to think otherwise.
We decided to wait a week and then have Prasad tell Shah that Banyans board would be willing to
come down to Rs. 3 crores.
Two days later, however, Prasad received a call from Shah, who said that his conscience was bothering
him. He had had a dream about Mrs. Kulkarni and the social good she was bringing to this world, and
this had persuaded him that, even though it did not make business sense, he should increase his offer to
Rs. 1.5 crores.

PGPM

Case 1

6
Prasad could not contain himself and blurted out his first mistake: Now thats more like it! But then he
regained his composure and said that he thought that he could get Banyans board to come down to Rs.
2.75 crores. They agreed to meet again in a couple of days for what they hoped would be a final round
of bargaining.
The Dance of Concessions
Following this phone conversation with Shah, Prasad told me that he had inadvertently led Shah to
believe that his Rs. 1.5 crore offer would suffice. Prasad also felt that his offer of Rs. 2.75 crore was
coming close to Shahs RP, because this seemed to be the only reason for Shahs reference to a final
round of bargaining. We talked further about strategy and we revised our probabilistic assessments of
Shahs reservation value and the likely outcome.
Over the next two days there was more jockeying between the two sides, and Shah successively yielded
from Rs. 1.5 crore to Rs. 1.65 crores to Rs. 1.75 crores and finally to a firm last offer of Rs. 1.80 crores,
whereas Prasad went from Rs 3.5 crore to Rs. 2.75 crore to Rs. 2.50 crore, and then, painfully, when
Shah sat fixedly at Rs. 1.80 crore, inched down to Rs. 2.25 crores. Prasad finally broke off by saying that
he would have to contact key members of the governing board to see if he could possible break the
stalemate.
Now, Rs. 1.80 crore not only pierced Prasads RP of Rs. 1.25 (needed for the Palghar move), but also
would make it possible for Banyan House to buy the more desirable Vapi property. It had at that point
become a question of gravy. I asked Prasad whether he thought Shah would go over Rs. 1.80 crore and
he responded that although it would take some face-saving maneuver, he thought Shah could be moved
up. Prasad felt, that if Shah were involved in other deals, and if one of these should turn out well, Shah
might well decide to wash his hands of Banyan.
Closing Gambits
What should Prasad do to finalize the deal?
Prasad did two things next. He first asked Milind Gupte to put in place all but the very final touches on a
legal agreement for acquiring the Vapi property. Gupte reported the next day that all was in order, but
that it was going to cost Rs. 15 lakhs more than anticipated to do some necessary repair work on the
house in order to meet Vapi municipalitys standards. Still, Rs. 1.80 crore would meet those needs.
Second, Prasad worked with Mrs. Kulkarni to find out what an extra Rs 15 30 lakhs would mean to
Banyan House. Mrs. Kulkarni said that half of any extra money should definitely go into the Financial Aid
Fund for prospective residents who could not quite afford Banyan House, and that it could also be used
to purchase items on her little list of necessary luxuries: a color television set, a video game player,
new mattresses and dishes, repair of broken furniture, a large refrigerator so that she could buy food in
bulk, and so on. Her little list became increasingly long as her enthusiasm mounted but Rs. 10 lakhs
would suffice to make a fair dent in it, and as Mrs. Kulkarni talked she became even more excited about
those fringes than about the move to Vapi. She was all for holding out for Rs. 2.25 crore.

PGPM

Case 1

7
The next day Prasad called Shah and explained to him that the members of Banyans board were divided
about accepting Rs. 1.80 crore (that was actually true). Would it be possible for your company to yield a
bit and do, for free, the equivalent of Rs. 25 -30 lakh worth of repair work on Banyans new property if
our deal with you goes through? In that case, we could go with the Rs. 1.80 croreoffer.
Shah responded that he was delighted that the board was smart enough to accept his magnanimous
offer of Rs. 1.8 crore. Prasad was speechless. Shah then explained that his company had a firm policy not
to entangle itself with side deals involving free contract work. He didnt blame Prasad for trying, but his
suggestion was out of the question.
Well then, Prasad responded, it would surely help us if your company could make a tax-free gift to
Banyan House of , say, Rs. 30 lakhs, for Banyans Financial Aid Fund for needy residents.
Now thats an idea! That is too high, but Ill ask our lawyers if we can contribute fifteen.
Twenty-five?
Okay-twenty-five
It turned out that for legal reasons Shahs company paid a straight Rs. 2.05 crores to Banyan House, but
Shah had succeeded in finding a good face saving for breaking his firm last offer of Rs. 1.80 crore.
Lest readers think erroneously that its always wise to bargain tough, I might suggest another perfectly plausible
version of this story: Shah might have backed out of the deal suddenly, at the time when he made his firm last offer
of Rs. 1.80 crore and Prasad demanded Rs. 2.25 crore. An alternative venture, competitive with the Banyan deal,
might have turned out to be better for Shah.
Source: Adapted from the Elmtree House, written by Prof Howard Raiffa, Harvard Business School

PGPM

Case 1