JAMS Updated Covid-19 ProtocolsLEARN MORE MENU HOME JAMS ADR INSIGHTS OPENING OFFERS IN NEGOTIATION JAMS ADR Insights BROWSE TOPICS Mediation Opening Offers in Negotiation ANN T. MARSHALL, ESQ. JAMS Mediator, Arbitrator, Referee/Special Master, Hearing Officer Published November 23, 2021 Whether negotiating in a mediation or directly with an opposing party, everyone has to start somewhere—so where should you start a negotiation? It may seem smart to begin with the absolute highest (or lowest, depending on one’s side of the “v”) offer one can possibly make. However, that can be counterproductive. The first offer is important. It sets the stage for the negotiation and can impact whether a case will settle as well as the ultimate settlement amount. Here are a few considerations to keep in mind when determining that first offer. Negotiation Exercise. The first mediation training I took put the class through a fascinating exercise. The fact scenario was straightforward: A business was winding down and had to sell its inventory. The negotiation was between the seller and a purchaser to buy the inventory, which had an undisputed market price. The class was divided into buyer and seller pairs to negotiate the sale. Authority was provided for the seller group (the lowest amount it would accept) and buyer group (the highest amount it would pay). There was a large overlap in that authority, which meant that deals could be made easily across a wide price range. Fifteen sets of attorneys negotiated the same transaction, after which the following information was charted: whether the buyer or seller made the first offer, the amount of each party’s first offer and the final price. Lessons Learned. Did those who made the most extreme offer fare best? They did not. In fact, parties who made the most extreme offers received worse deals in the range of deals made. Parties who started with less extreme opening offers made better deals. Here are some key reasons why an extreme offer strategy is not successful: Chilling effect (other party does not engage) Credibility questioned Trust eliminated; suspicion maximized Pivots negotiation into a competition versus an exploration Best Practice in Mediation. Mediators are often faced with an initial, extreme offer by one party. Should we take it to the other side? After all, the first round in mediation is early to start arguing, plus there are methods we can employ to lessen the impact. Personally, I keep the insights learned from this exercise in mind and find it valuable to share them. Not many parties have had the opportunity to have a transparent view into the same deal negotiated 15 different ways to see what works and what does not. I think it is a best practice to have a conversation about what I believe may be an extreme offer and why reconsideration is warranted. It may be that the party wants to proceed anyway. But given that the opening offer can negatively impact the ultimate settlement, the potential consequences should be discussed. And if there are other drivers behind someone’s first offer—like anger or a desire to punish—well, there is no time like the present to discover those motivations and start talking about them. Opening Offer Elements. What is a productive opening offer? There are essentially two key components: The offer should have a rational basis from the perspective of the opposing party. This typically means it should be tied to a likely result at trial. The offer should confer a benefit to the opposing party. While there is (a lot of) room for disagreement for whether something has a rational basis and what is a likely result at trial, the key is to be within the range of reason from the opposing party’s perspective. For example, in the exercise above, some of the extreme offers to sell were higher than the market price of the inventory—an amount no rational buyer would pay. There was no incentive for the buyer to accept the offer, and therefore no incentive to seriously consider the offer and engage. Consequently, to make a deal, the seller had to make larger moves that were never matched by the buyer. Mediator Value Add. If only it was so easy to have a known and exact alternative to a deal such as an undisputed market value for inventory! Parties and cases are always more complex. It can be tricky to determine what is reasonable for both sides. A mediator can add value by providing input regarding this important first step in a negotiation. Ann T. Marshall joined JAMS in 2020 after litigating for over 25 years. She has a substantial amount of experience in real property, commercial finance, consumer lending and other commercial disputes. She was routinely retained by title insurance companies to represent their insureds. She also represented both policyholders and insurers in coverage disputes. EXPLORE MORE ON THESE TOPICS Mediation Disclaimer: This page is for general information purposes. JAMS makes no representations or warranties regarding its accuracy or completeness. Interested persons should conduct their own research regarding information on this website before deciding to use JAMS, including investigation and research of JAMS neutrals. See More Related Stories Virtual & Remote ADRArbitration Virtual Mediation in Today’s World: A Pandemic Success Story CAROLINE ANTONACCI When the legal profession began to experience the impact of the COVID-19 pandemic, I wondered specifically how it would affect alternative dispute resolution. I was not so concerned about arbitration. There was precedence in practice and in the courts for telephone conferences, videotaped depositions and video broadcasts of appellate arguments, among other things. But mediation—in my mind—presented unique issues. Initially, I was skeptical that successful mediation could be achieved outside of an in-person setting. A skilled mediator must build rapport and trust with counsel and the parties. The mediator must also be able to read the room in terms of interests, chemistry and “atmospherics.” How was I going to be able to give clients or counsel “the eye” or gently tap them with my foot under the table when something that they were saying or conveying through body language was not conducive to amicable resolution and might upend the mediation? How would I speak privately with a participant in the hall outside the mediation room? After settling thousands of cases in my 20-plus years in the appellate court in Manhattan and at JAMS, I was not sure how mediation would, or could, adapt to the use of virtual proceedings. Estate, Probate and TrustsMediation [PODCAST] JAMS Neutrals on the Evolution of Trusts and Estates Disputes and Considerations for Selecting the Right Mediator LISBETH M. BULMASH GLEN M. REISER In this podcast, JAMS neutrals Hon. Glen Reiser (Ret.) and Lisbeth Bulmash, Esq., discuss how the pandemic and a shifting landscape around wealth transfers is fueling increased trusts and estates disputes. They weigh in on how preparing adequately and selecting the right mediator are crucial for getting ahead of a conflict and finding a solution that meets the parties’ goals, as well as how the approach to mediation differs across states. The neutrals also discuss capacity and undue influence, two factors that impact estate planning, including how analyses of those factors vary and are impacted by advancements in physiological and psychological science. Finally, Judge Reiser and Ms. Bulmash offer their thoughts on how to select a thoughtful and creative mediator. Diversity, Equity and InclusionArbitration “My Story” Featuring Mercedes Armas Bach (Retired Judge, 11th Judicial Circuit) MERCEDES ARMAS BACH Discovering a Passion for ADR FEATURED SERIES Virtual Mediation, Arbitration and ADR Services Proficient neutrals. On-demand tech support. Innovative processes. Optimal results. SEE ALL STORIES Virtual Mediation in Today’s World: A Pandemic Success Story CAROLINE ANTONACCI When the legal profession began to experience the impact of the COVID-19 pandemic, I wondered specifically how it would affect alternative dispute resolution. I was not so concerned about arbitration. There was precedence in practice and in the courts for telephone conferences, videotaped depositions and video broadcasts of appellate arguments, among other things. But mediation—in my mind—presented unique issues. Initially, I was skeptical that successful mediation could be achieved outside of an in-person setting. A skilled mediator must build rapport and trust with counsel and the parties. The mediator must also be able to read the room in terms of interests, chemistry and “atmospherics.” How was I going to be able to give clients or counsel “the eye” or gently tap them with my foot under the table when something that they were saying or conveying through body language was not conducive to amicable resolution and might upend the mediation? How would I speak privately with a participant in the hall outside the mediation room? After settling thousands of cases in my 20-plus years in the appellate court in Manhattan and at JAMS, I was not sure how mediation would, or could, adapt to the use of virtual proceedings. Focusing on Alternative Dispute Resolution: A Conversation With Two JAMS Neutrals BETTY WEINBERG ELLERIN SHERRY KLEIN HEITLER Hon. Betty Weinberg Ellerin (Ret.) and Hon. Sherry Klein Heitler (Ret.) served on the bench in New York State for more than 25 years before joining JAMS—Ellerin in 2005 and Heitler in 2021. Both of these accomplished women have handled thousands of cases in multiple areas of the law. Recently, Justice Ellerin and Justice Heitler shared their thoughts on the skills needed to be a successful arbitrator and mediator, the benefits of mediation, where the ADR field is going, what advice they’d give to aspiring mediators and arbitrators and more. SIGN UP FOR EMAIL UPDATES Stay updated on the latest in mediation, arbitration and dispute resolution. Contact Submit News Events Careers Disclaimer This website is not a solicitation for business. All content on the JAMS website is intended to provide general information about JAMS and an opportunity for interested persons to contact JAMS. The content of this website is not offered as legal advice or legal opinion and it should not be relied upon for any specific situation. JAMS neutrals are not engaged in the practice of law and no attorney client relationship is intended. This website is for informational purposes only and does not constitute a complete description of JAMS services. While JAMS endeavors to keep the information updated and correct, JAMS makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, or reliability of the information contained in this website. SEE MORE Disclaimer Consumer Case Information Neutrality CCPA Compliance Cookie Consent Sitemap Privacy Policy Terms of Service Copyright 2021 JAMS. All Rights Reserved 800.352.5267 We use cookies to personalize and enhance your experience on our site. Visit our Privacy Policy to learn more or manage your personal preferences in our Cookie Consent Tool. By using our site, you agree to our use of cookies. Decline Accept and close Options Feedback