Campbell siblings Thomas and Sally are faced with selling their childhood home. They need to make several difficult decisions, all the while navigating their contentious relationship. Leslie John discusses the importance of asking (and answering) the right questions when negotiating, particularly under emotional stress.
Brian Kenny: It seems like nearly every industry has been disrupted in one way or another, so it’s rare to come across one that still operates pretty much the way it always has. Enter real estate. Now, it’s not accurate to say that there has been zero innovation in the buying and selling of property. Platforms like Zillow and Trulia have brought transparency to the market that in ways never existed before. But anyone who’s gone through a real estate transaction as of late, can attest that the process of buying or selling a home remains as opaque as it ever was. Today we’ll hear from Professor Leslie John about her case entitled, The Campbell Home . I’m your host, Brian Kenny and you’re listening to Cold Call recorded in Klarman Hall Studio at Harvard Business School. Leslie John is an expert in negotiations and her research centers on how consumers’ behavior and lives are influenced by their interaction with firms and with public policy. Leslie, thanks for joining me today.
Leslie John: Thanks for having me.
Brian Kenny: So we were saying before that you are a repeat visitor to Cold Call, we like having you back here again.
Leslie John: I’m flattered.
Brian Kenny: I guess it’s not too painful for you, but I think people will really relate to this case. Most of our listeners, I assume have gone through this process, maybe some more recently than others. But as I sort of alluded to in the introduction, it hasn’t changed a lot over the years and it’s a pretty daunting process. And this brings up some great questions about some of the decision points that people have to make, so I’m glad you’re here to discuss it. Let me just ask you to start by sort of setting things up for us. How does the case begin?
Leslie John: The case begins with the two protagonists, siblings, Sally and Thomas Campbell. They’re sitting in a coffee shop near Harvard Square and they’re discussing how to move forward in parting with this asset, their childhood home. In this case, you have a situation where there are some really fraught emotional dynamics. So these siblings, they don’t really get along that well. They also have very different interests in selling. Thomas kind of hasn’t really even been wanting to sell until fairly recently. In fact, this case was inspired by my own situation in selling a property where I was going through a divorce, and so a lot of the aspects of this case that reflect the more tumultuous components of decision making, they’re designed to be representative of some of these situations that I went through and things that I’ve learned along the way.
Brian Kenny: A real personal imprint on the case itself. How does this relate to your research and the work that you do at Harvard Business School?
Leslie John: So one, it relates to a course I teach. I teach a course on negotiations, though it’s of course the negotiation of buying, selling properties is very central to that. I would say more substantively, it is deeply related to my research in terms of asking and answering questions. So, in this particular case, there are situations where Sally and Thomas are asked difficult questions about why, for example, why they’re selling the home. And by difficult question, I mean a question that if answered it could weaken your strategic bargaining position. So, in a lot of my research I deal with how people address these situations and I view there’s kind of a continuum between on the one hand, outright lying, which most people you like to think want to avoid, and full transparency, which is always putting all your cards out on the table. Which if we always did that, we would never get good deals for ourselves, at least in single issue negotiations. So, how do we navigate this dance in the middle zone?
Leslie John: So, that’s part of the case
Brian Kenny: And particularly for people who are going through a transaction, they may never have gone through a transaction like this before. There’s a lot of legality involved and all those issues come up in the case…
Leslie John: Of course, and that’s a really key part of the case is thinking about the desired outcome, selling the house, and what you want to have happen. And then working backwards and designing a negotiation process that will maximize the chance that you end up at that desired outcome. So, there’s a lot of grist here in how to set things up.
Brian Kenny: And I also was interested sort of technically in the way that you designed the case, there’s actually an A, B, and C case. Just talk about a little bit about the thought process behind that.
Leslie John: So the A, B, C, case structure really captures the common phenomenon, at least in this market, where things change really quickly and you get thrown curve balls and then you have to rapidly adapt. And so, and that is in fact what happened when we sold this house, you get an early offer. Is that a good thing? Is it a bad thing? Should you take it now? It brings to mind all kinds of questions of what to do.
Brian Kenny: So the case sort of mimics that dramatic turning points that happen throughout this process.
Leslie John: Exactly.
Brian Kenny: The case you start out by sort of describing the U.S. housing market. Can you just give a few insights into what that market looks like? I know this was a couple of years ago, but it’s probably relatively close.
Leslie John: It’s hard to make sweeping claims about the U.S. market in general. There are of course trends, but it’s also highly regional, and so even within Boston you can see very different enclaves of Boston. You’ll have some locations like Cambridge, and even within Cambridge, locations where you put something on the market, it’s really a seller’s market, you put it on the market and there’s an offer, multiple offers, within days. Or even, it doesn’t even get to the point of being on the market. But yet in other regions it can be kind of the opposite, where it’s more of a buyer’s market. So it’s highly variable I would say by region.
Brian Kenny: And the protagonist in the case, they’re named Sally and Thomas. Siblings as you described before, how much does this really mimic what you were going through? Were you both in favor of selling the property or was there really some tension there about whether or not to do it?
Leslie John: Yes, there was. It very much follows the tension. Obviously we weren’t siblings… But the tensions with respected different interests. It’s not only representative of situations where there are very fraught negotiations, in many negotiations, we have… even the people that we kind of are on our side, we can often have a variety of different interests. I think in this case, when you add the kind of emotional tensions and frictions and the interpersonal dynamics, those differences in interests can really explode and make for a really challenging situation. So, in my situation, yes, I was very eager to sell. I wanted to move on, not simply to make money on it, I was hoping to, but psychologically kind of the value of moving on. And when I teach this case, I encourage students to think about from Sally’s perspective and also from Thomas’s perspective, what their interests were. The gut response is, of course we want to sell it for the best price we can get, but what else do we care about?
Well, we care about, well Sally, she cares about closure. She wants to close rather quickly, and then take the step further in thinking, “Well, I know it feels a little crass and taboo to do this, but what’s that worth to you in terms of a rough dollar figure”? And the reason why I encourage students do this is one, by thinking it through, you realize actually the broader constellation of things that you care about. And then by attempting to put some kind of evaluation on it, however crude, that helps you to integrate and have a sense of what kind of your reservation value is essentially. And if you don’t do that, you’re implicitly assigning zero value to all these other things you don’t care about. If that makes sense.
Brian Kenny: Right. It does. It does. So, what’s the turning point where they both at least get on the same page about selling, about moving forward with the sale part of it?
Leslie John: I think it was the reality of the situation of walking through the alternatives. And that’s kind of negotiation 101, right? It’s illuminating where, what were Sally and Thomas’s alternatives? What were our alternatives? We considered situate, like one buying the other out, but that wasn’t really financially viable for at least one of us. We considered, well what about renting? Having one person potentially pay rent, downsides to that as well. And in the end, I think it was kind of coming to terms with reality, that this was really the only and the best option.
Brian Kenny: And there was also the realization that this piece of property was probably worth a lot, and this location and this current market.
Leslie John: Yes, yes.
Brian Kenny: And I guess the question then also comes up at some point about how much is enough? And we’ll get to that a little bit later because there’s another turning point in the case where that comes up, right? So can you describe the home a little bit? What’s the Campbell home look like?
Leslie John: Oh, the Campbell home is dreamy. The Campbell home, a townhouse in the middle of a Cambridgeport, part of Cambridge. A, I think, very desirable part of Cambridge and situated kind of nestled behind the roadway. So it was surprisingly private and it had its own yard space, which is also fairly unusual for that area. Very bright, it was… wonderful neighbors. The Campbell home was a great home.
Brian Kenny: We talked a little bit about the value of property in the greater Boston area. Give us a sense for kind of like in the Cambridgeport area, what’s the median prices look like?
Leslie John: Obviously it depends on whether you’re getting a condo, the floor of a triple decker, but you could pay $600,000, $700,000 at the time for a floor of a triple decker, two bedroom, that was nicely done.
Brian Kenny: Yes, so up there.
Leslie John: Right. And so this is a townhouse. Yeah.
Brian Kenny: What are some of the things that are sort of weighing on your mind, Sally’s mind, as you’re thinking about what the options are here? There were some definitely some turmoil I think in Sally’s mind as the case unfolds.
Leslie John: Her reservation value was lower than Thomas’. So what she’s… she’s doing this dance where she’s thinking, “I would willing to part with it for approximately X dollars rock bottom. But I also need Thomas to agree because we co-own this. And so, for that reason I either try to convince him”. But that’s, especially given the fraught dynamics of the relationship, that’s tricky. So then she thought, “Well, then my goal actually is… then I really should align my interests with his, in terms of trying to get the highest possible price”. And, this is also really relevant to the question about whether to hire a broker. Essentially the general question in negotiation is, should you negotiate on your own behalf or should you hire an agent to negotiate on your own behalf. And there’s a lot of pros and cons to each. And this is something that we discussed when we were selling the house. And it seemed on the one hand crazy to give this 6% commission when these things go on for a week.
Brian Kenny: Right.
Leslie John: But then that’s kind of the knee jerk reaction, and that’s often a knee jerk reaction when we think about, “Do we hire an agent? What are they going to do for us”? Or an analog in marketing would be, “Should we hire a distributor or should we go it alone”? I think this is a situation where we were prone, looking at it in hindsight, to underestimating the value of the agent. And one of those reasons is actually to manage having kind of a “grownup” to manage the friction. It’s harder… if you have two parties like Thomas and Sally or the situation I was in, that aren’t getting along very well and are being very contrarian with each other, sometimes having someone in the middle can help.
Brian Kenny: It’s sort of a buffer zone.
Leslie John: I found that very helpful. There’s also other reasons that we considered beyond that of whether to hire an agent or not. You think about the signal value, and there’s some evidence in the case that can meet that students often debate. So, if you put up a, for sale by owner, what’s the first thing that people think? The shrewd person who’s looking for a deal, they’re, “Oh, they don’t know what they’re doing. I can get a deal”. So you want to portray an image of expertise and an agent can do that, and that’s worth something. And of course they have deep knowledge that you don’t have typically.
Brian Kenny: So how did they kind of move, navigate this interesting decision path for them, on whether to use a broker or not?
Leslie John: They elucidated the different trade-offs. They… so one thing that I think was really good was they, it feels weird to switch between they and I, and I mean it’s all intertwined, but is getting past the kind of knee jerk response of, “Wow, that’s a lot of money”. It is a lot of money, but let’s understand what it does for us. And in the end it just seemed like it… it was also, there’s a value of simplicity. It would’ve made things… it made things much more simple to move forward with.
Brian Kenny: And just the understanding at some level that there are going to be lots of documents and requirements and things that just the average seller may not be aware of. You can probably find a lot of that information online, but you can also find a lot of information about a medical condition online that turns out not to be too helpful when you go to see a doctor, so.
Leslie John: Exactly. And it’s kind of like you don’t know what you don’t know. And so for that reason, sometimes we’re prone to undervaluing the things that they do for us.
Brian Kenny: Right, right. So, you guys took an interesting approach, you basically auditioned potential brokers.
Leslie John: Yes.
Brian Kenny: Talk about that a little bit.
Leslie John: So one thing that I… that this, the process of auditioning different brokers made salient to me was the importance of being observant of how people treat you, especially when they are trying to earn your business. In situations like that, if they do something that rubs you the wrong way, I think that’s quite diagnostic, because they are so motivated to be on their very best behavior. It’s almost like you could think of now dating analogies, right? If someone who’s wooing you treats you like a jerk, stay away. And so, in this situation there’s some subtle cues in the case. So the broker that they ended up choosing, David Sullivan, was extremely prompt. He immediately set up a time to meet and discuss about the possibility of getting the listing. The other team was slower on that. Now there’s of course, lots of other re- they’re good reasons why, that are unrelated to interest or lack thereof, but it is a cue nonetheless and it shouldn’t be ignored. So, so that’s one thing that I kind of learned for. I mean, I don’t have the counterfactual, I don’t know what would’ve happened if we had hired the other team. In the end, things worked out great as it went.
Brian Kenny: But at some level you go with your gut, right? You get a gut feeling about this person and you make a decision, right?
Leslie John: And I think also the act of… well it’s good for managing your own psyche in that well depending on what kind of personality type you are, if you’re someone who, like me tends to be hyper analytical for better or for worse and replay things in one’s mind, it gives you closure knowing, “Look, I’ve examined all the options. I made an informed choice”. It also conveys to the broker that you are someone who cares a lot, is sophisticated, is informed, and so they should treat you the same way. So I think there’s a lot of good aspects of doing that.
Brian Kenny: And did you both agree to that decision? There was no sort of friction around whether to go with David or whether to go with the other?
Leslie John: Yes, that was an easy decision. Sullivan had deep expertise within the exact area. And in Cambridge the regions can this… by street, by street, it can be a totally different ballgame. And so that was a huge plus. And then finally we thought of… I think sometimes there’s the tendency to go with the brand name, the big fish. And we thought, “Do we want to be a small fish in a big pond? Or big fish in a small pond”? Whereby the team, they sell much more expensive properties, and we thought, “Are we going to… we want to be a big deal to this person because we want their attention and effort”.
Brian Kenny: Right.
Leslie John: And so that was our theory for what it’s worth.
Brian Kenny: They both did a market analysis for you, and came back to you with a potential market value for-
Leslie John: Ah, yes.
Brian Kenny: … where they would price it. Huge disparity.
Leslie John: Yes. Right. Thank you for bringing that up. So huge disparity. And at first I was skeptical, because of course the broker tells you what you want to hear. They’re trying to get your business. So, and Sullivan’s valuation was much higher, so that immediately made me skeptical. Something that brokers sometimes do is they’ll present you with a, kind of a biased list. They don’t call it a bias list. A list of some past sales, and that list is not representative. So, they’re kind of sometimes cherry picking what… which is understandable because they’re trying to earn their business-
Brian Kenny: These are comparable sales according to the size of the house and the location, et cetera, et cetera.
Leslie John: Yes. And so, what we did was we tried to get other sources of information to figure out what our property might be worth. And then those figures were actually more aligned with Sullivan’s. And even things like the, and this is also in the case, the way that we also asked them, how did they come to that decision and what were the types of houses that they consider to be comps? And with the agents that were less directly in this area, it seemed to be that their comps were based on kind of more superficial aspects. Like the nuts and bolts of how many bedrooms as opposed to the things that you would have better sense of with expertise, like what street you’re on, what block of the street are you on? And Sullivan seemed to have more nuance to it.
Brian Kenny: Okay.
Leslie John: But again, it was also happened to be the thing that we wanted to hear.
Brian Kenny: Yes, of course. Well that’s another important negotiation tactic, I guess. So you’ve now made a couple of important decisions. You’ve agreed to sell, you’ve agreed on the broker, so what happens from there? What is… he sort of steps in and kind of takes over the process at that point.
Leslie John: And so we talked about, well okay, how do we get… the desired end state is having a really high offer, ideally no contingencies because we wanted a quick close. So, all cash ideally, which is very common in that area because the market is such a seller’s market.
And so, we kind of worked backward and we thought, Well, we want to have a bunch of offers in our hand at the same time. Because then we can kind of have an auction and we can say, “Well, come back with your next… your best and final, or something like that. Well, okay to do that we need to have a deadline.
Leslie John: And we need to ideally not accept offers before that deadline, because they’ll probably all come in at the end of the deadline. So, that’s the process we set, where we had… we put it on the market on next day, there’ll be open house the next day, and then the offers would be due a few days later.
Brian Kenny: Okay. So you’ve got a five day window in here.
Leslie John: So, then a curve ball happens. I mean, curve ball maybe sounds too negative because it was wonderful. We got a wonderful offer that had an expiration that was prior to the deadline. So in negotiation, my, one of my colleagues, Guhan Subramanian, he has a term for this called the shutdown move. So that, the other party, very smartly they anticipated, “Oh wow, we don’t want to get stuck in this bidding war. There’s nothing to stop us from giving an early offer and having a tight deadline”. So they’re kind of grabbing the reins of the negotiation process. And from our perspective it was wonderful because it was a great offer. But then it makes you think, “Well, will we always wonder what could’ve been”?
Brian Kenny: Might be a better offer, right?
Leslie John: Yes, or are we getting greedy? This is crazy.
Brian Kenny: So that goes back to the question of, how much is enough?
Leslie John: Exactly.
Brian Kenny: And you tell me, in negotiations is it important to know kind of what your walkaway number is?
Leslie John: It is. It’s very important to know what your walkaway number is. In a way though, when you’re in the negotiation, you want to forget about that number because you want to dream big. If you’re kind of anchored on your walk-away, then that can prevent you from getting an even better deal potentially. So, how much is enough? There is no answer to that in a way. You know what the minimum is, and so that’s one of the things that makes it tricky. I was ready to sign on the dotted line, but I also saw the value of trying to see the process through to the end because you… I know that I would wonder. I’m not proud of myself for wondering because it’s a perfectly good offer, but I think a part of me would have wondered what other offers we may have gotten.
Brian Kenny: Okay. So, they had some questions for you as well. This offer came in with a list of questions. Talk about those.
Leslie John: Yes. So actually prior to the offer, we got a list of questions from this party that went on to make an offer. And so, this list of questions was a great signal to us that they’re very interested and serious. And so, the questions were pretty easy to answer for the most part, except there were a few that kind of give us pause. Why… do you have any other offers? That was a question. Well, we didn’t have any other offers. So if you say, “We don’t have any other offers”, might that make them lower their offer? Right?
Brian Kenny: Right.
Leslie John: We certainly didn’t want to say we had offers because that would’ve been a lie. So how do we answer the question? Well, one thing to not do that my research has shown is to just opt out of answering the questions, say, “We’re not going to answer that question”. That’s a terrible idea. Not only do people then assume the worst, which in this case would be that you don’t have other offers, on top of that, there’s an interpersonal penalty. People just think you’re shady and untrustworthy. So don’t do that. Say something. So there’s different approaches to this question. You could say something like, “We may have other offers”, which is not lying. It’s not, yeah, it’s a little in between. Right? It’s a dance.
Brian Kenny: It’s mushy.
Leslie John: And another that I like better is, “We are expecting the offers to come in by the deadline”. it shows that it’s not a problem that we don’t have offers.
Brian Kenny: It’s confidence.
Leslie John: It implies that we don’t have offers and it’s not a problem that we don’t have offers. Right. So I liked that approach but, meta-wise, whenever you get these questions in a negotiation, sometimes they can be threatening. And I think it behooves us to kind of pause and consider how we should answer. Another question was, why are you selling the house? And there’s a bit of a concern that if you say, “Oh, we’re selling it because we’re breaking up”. You don’t want the other party to think, well, that we’re desperate. So, how do we answer that question? Well, one general idea of how to answer it is you can use it as an opportunity to kind of to frame it for… give an answer that frames information to your strength. So you can say, “The sellers are moving on”. They don’t have to buy anything. They’re not in an urgent rush. So if they don’t get the full value of the house, then they’re simply going to hold onto it.
Brian Kenny: Right.
Leslie John: And it’s nice full value. Right?
Brian Kenny: Yes. Uh-huh (affirmative).
Leslie John: So, even the words you use can be helpful. Now these are small things, if they have effects on the perception of value in the counterpart, they’re small but every little bit helps., right?
Brian Kenny: And you have to assume also that they were smart enough to ask these questions. They’ve probably… they’re taking someone’s advice or they’ve been through this before to know that these are the sort of the right questions to ask to get beneath the surface a little bit.
Leslie John: Yes, they definitely came across as a sophisticated buyer.
Brian Kenny: Did you answer the questions?
Leslie John: So we did answer the questions.
Brian Kenny: You did.
Leslie John: We did answer them. Similar to kind of how I’ve been describing different possible answers. And so, when I teach this case, one of the things I like to emphasize is, questions are kind of like gifts, in that they do a lot of things for us. They give us stuff for free. So one, they give us information for free. The questions that the parties are asking, that gives the recipient of those questions, information on that person. Right? And sometimes we leak information in the very types of questions we ask. We also convey, in this case, they conveyed a sense that they were sophisticated. But if you ask different questions, you can convey your ignorance. So, it gives you information as someone who is on the receiving end. They also give you an opportunity to answer questions in a way that frames your own situation in an advantageous position. They help you to control information.
Brian Kenny: So, you waited until the dead… so I’m just curious, how did this play out? I won’t spoil the ending, but…
Leslie John: Sure. So we answered the questions and then came the offer with this deadline. So this is another thing to think about in thinking about negotiation situations where it feels like you’re getting an ultimatum.
Brian Kenny: Yes.
Leslie John: So this feels like an ultimatum. If you don’t accept this by X date, it will go away. Oftentimes they’re not actually ultimatums. Sometimes people, the givers of ultimatums, think they’re truly in a bind. Other times they just haven’t thought of alternatives. Sometimes it’s a power move. I think this was a very savvy power move. But, whenever you get an ultimatum thinking to yourself, “Well, is this actually an ultimatum”? What will happen? What will actually happen? And we thought, “What will actually happen if we let this… if the deadline comes and goes, will they all of a sudden not be interested in buying this house”?
Brian Kenny: Right.
Leslie John: Probably not. Given the situation in the market, given how clearly eager they were to buy it. The offer itself had, this is also points of their sophistication but also I think their eagerness, it had a picture of them. It had a letter. It said that they had lost out on other houses, so they’re very motivated. So it was hard to imagine that all of a sudden after the deadline there’d be no interest. Now, it’s not without risks. We also want to understand the risks of letting the deadline come and go. So, what if we don’t? It’s possible, unlikely given the the real estate situation in that market, it’s possible that we wouldn’t get any other offers.
Brian Kenny: So you have to know your situation-
Leslie John: Right.
Brian Kenny: … know what the odds are a little bit.
Leslie John: Exactly. But, in the end we decided to see what happened. And we got more offers by the deadline and wonderful offers and… but interestingly that first offer was the best offer.
Brian Kenny: It was? I was going to say I hope the happy couple got it, so that’s good.
Leslie John: I know. And then… and I was so happy with that outcome because you get also kind of… I don’t know if it’s… I don’t want to say irrational, because we’re human and it’s good to be human. You kind of get… you’re rooting for different buyers. Right?
Brian Kenny: Well and then I think it is pretty common these days. Again, back to your earlier comment about what kind of a world do we live in, people are doing anything they can to get an advantage in this housing market. It’s difficult. It’s an emotionally trying thing, both for the seller and the buyer I think.
Leslie John: An interesting piece of research that one of our doctoral students has been working on. Her name is Emily Prinsloo. She had this research idea that people care about the “after life” of goods. So, after you part with a possession, if you sell it, you care what happens after. And so in housing, you see this all the time. Where sellers care about what the buyer will do with the house.
Brian Kenny: Sure.
Leslie John: It’s irrational in the sense that it’s not your house anymore and you should care about… and so you see that people are actually willing to, sellers are willing to, take a hit on the price if it’s to a buyer that they think will keep the wallpaper the same.
Brian Kenny: Yes, well you put a lot of blood, sweat and tears into your home and you want somebody to treat it with respect. So I totally get that. So you’ve discussed this in class before. Any students who have just gone through the process of buying a house? I’m just curious if you get any interesting insights.
Leslie John: People have strong opinions about house buying and house selling. About whether you should use agents or not, and lots and lots of personal experience that I think is really fun to draw upon in class.
Brian Kenny: Leslie, thanks so much for joining us.
Leslie John: Thank you for having me.
Brian Kenny: If you enjoy Cold Call, you might like other podcasts on the HBR Presents Network, whether you’re looking for advice on navigating your career, you want the latest thinking in business and management, or you just want to hear what’s going on in the minds of Harvard Business School professors, the HBR Presents Network has a podcast for you. Find them on Apple podcasts or wherever you listen. I’m your host, Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School on the HBR Presents Network.