Housing options for Alex and Sally: Case study analysis

Assessment 2 Case Study

Four years ago, Alex purchased a small, one-bedroom apartment in Sydney with a mortgage of $275,000. Alex plans to marry Sally in six months’ time. He feels the apartment is no longer fit for purpose. Alex is about to list his property for sale. The couple will use the equity released by the sale to help fund the purchase of their first home.

The area where Alex lives has become ‘gentrified’ (fashionable) with corresponding rises in property prices. Three estate agencies (GoLocal, ReSale, and Ventis International) have appraised Alex’s apartment. For the property in its current condition, the agents working for GoLocal and ReSale suggest a sale price of $450,000 - $480,000. The agent for Ventis International thought the property might achieve $500,000 in the current market. Of the three real estate agencies, only ReSale specialise in selling apartments and small dwellings.

The agencies all agree that if Alex invests in upgrading the kitchen and bathroom, the sale price would be in the range of $530,000 to $550,000. However, it would require a minimum capital investment of $40,000 to do the necessary work. Alex is reluctant to find this money when the couple are saving to pay for their wedding. Alex and Sally think this expenditure (and the time required to do the re-modelling work) would delay their wedding by up to one year.

 Sally, who does not own a property, has been living at home with her parents. Her savings would contribute $75,000 towards the house purchase. The couple’s combined income would secure a maximum mortgage of $750,000. Regardless of the money the couple can put on paper towards their new home, they believe they should keep $50,000 in reserve, to meet closing costs and other contingencies.

Alex and Sally’s New Home?

As soon as the apartment went on the market, Alex and Sally started house hunting. Currently, they are interested in two properties:

Property A: Is a two-bedroom apartment in a suburb close to Alex’s current location. The transport links are good. Commuting times to their respective workplaces would increase by only 5-10 minutes per journey. The bedrooms are a good size. The apartment has been refitted recently, and requires no additional work before moving in. There is adequate storage throughout, and a space to park a car.

 The apartment is scheduled to be sold by auction. Private inquiries indicate that the current owners are looking for no less than $840,000.

Property B: is a 3-bedroom house in the wider Sydney commuter belt. Train journeys for both Alex and Sally would rise by 25 minutes each way. Although the house is in good decorative order, it would benefit from some modernisation. There is off-street parking for two cars. The plot size offers the prospect of extending the house to accommodate a growing family. The current owners have secured planning permission for a modest extension.

The advertised price for this house is $895,000. According to the listing agent, the current owners were excited by a sale in their area, where a similar house sold for $910, 000.

REQUIREMENTS

Analyse the Case Study, then answer the following questions. (Treat the word limits as a suggestion, and not a hard guide.)

ANSWER

Executive Summary

This paper reviews a number of housing options for Alex and Sally based on their available funding for a new house. It was suggested that they choose Option B because it would meet both their short- and long-term objectives.Additionally, unlike Option A, it has a fixed price, two parking lots, and it is a 3-bedroom house with ample space for expansion, coupled with the fact that a license for the expansion has been obtained by the owner.

Introduction

In negotiation, thinking preferences influence how people see the negotiation process and strategize to meet their target goals. Overall, it has a direct influence on negotiation power, and it is the negotiation power that determines the direction of a negotiation agreement. For those who have high negotiation power, the negotiation process will move in their direction as they can better influence it with their creative risk-taking abilities and loss perspectives. In view of this, this entry is designed to assess my negotiation ability based on my thinking preference as it relates to housing options for Alex.

To do this, the paper is divided into five sections. In the first section, my thinking style and negation ability are assessed using the Sternberg-Wagner questionnaire, followed by analysis of reservation value and BATNAs for the housing options. The third part looks at negotiation for Option A, while negotiation for Option B is detailed in the fourth part. Finally, I wrote a recommendation letter for Alex and Sally in the fifth part, detailing my recommended housing option and justification for that.

Part 1: Negotiation and Thinking Styles

suitability of my thinking preferences (form and scope) in conducting property negotiations.

To assess my thinking style and negotiation skills, I answered the Sternberg-Wagner questionnaire, and the justification for that is that it is one of the most pronounced tools used for exploring and classifying different styles of thinking in education (Yuan, Zhang & Fu, 2017; Canbolat, Erdogan & Yazlik, 2016; Fan, 2016; Zhu, 2013; Fink & Garner, 2008). My thinking style dimensions are as detailed in Appendix (1).

The answer to the Sternberg-Wagner assessment shows that I am monarchical in my form of thinking, as I like doing things one at a time, spending all my energy until I get it right. In terms of scope, I prefer to work independently and alone, focusing entirely on the work before me and avoiding distractions.

Galinsky and Magee (2022) discuss power in negotiation and how it impacts the negotiators and the negotiating process. They aligned their view with that of Dacher Keltner of the University of California, stating that power in negotiation affects two main neurological behavior regulator systems: behavior approach and behavior inhibitors. They stated that the behavior of powerful negotiators is more approach-related as they exhibit a positive mood and are always in search of rewards within their environment.

The main elements of a powerful negotiator are: 1) they take actions; 2) they are protected; 3) they take creative risks; and 4) they have lost perspective (Galinsky & Magee, 2022). Essentially, they are likely to change their views and approach in order to get what they want, and they are patient enough to get that done. This does not fall within my traits as discussed above, as I prefer to work independently, follow established rules and am less likely to try new things. Therefore, when I am negotiating, I am less likely to change an offer or accord an ample amount of time to the negotiation process, as I would naturally want everything to be concluded as fast as possible.

Clearly, it is evident that my traits do not meet those of a good property negotiator as I would likely lose out on a good deal when I try to push things a little faster or am unwilling to apply a creative risk-taking approach (like giving the process some time and assessing more offers before reaching my final decision). Therefore, it is imperative that certain changes be made to this thinking preference in order to enhance my negotiation traits and outcomes.

How can Alex adapt and become a successful negotiator?

Changes needed are all about enhancing his negotiating power based on the provisions made by Galinsky and Magee (2022). First, he needs to trigger his strong BATNA, increasing his confidence and proactively acting throughout the negotiation process, taking actions as due without fear of losing out in the negotiation agreement. Secondly, he protects himself by ensuring that he doesn’t make decisions based on emotions or angry eruptions, separating the negotiation process from his personal life and focusing on getting the best deal. Thirdly, he should be creative in the way he takes risk, being optimistic and positive about the entire negotiation process. Finally, he should have a long perspective, not jump into conclusions and be aware that a better offer can arrive even at the 11^th hour. Essentially, he needs to improve his negotiating power as this will put him in a better position during the negotiation process.

Part 2: BATNAs and Reservation Value

Which company should Alex select to sell his apartment?

Alex should have chosen Resale. This is because while the price ($450,000-$480,000) it suggested is lower than the price ($500,000) suggested by Ventis International, it was stated in the case that ReSake is the only company that specializes in selling apartments and small dwellings—something that falls within the category of what Alex wants to sell.

What is Alex’s BATNA when selling his apartment?

As opined by Subramanian (2022), BATNA is the definition, or the ability of a negotiator (Alex) to identify the best alternative to a negotiated agreement, and it is among the critical information that negotiators seek when formulating negotiation strategies or completing a deal.

For Alex, the best BATNA would be to sell the apartment in its original form without upgrading the kitchen and bathroom. Doing the upgrade will increase the market value of the apartment to $530,000-$550,000, but it would require an investment of $40,000, money that Alex is not willing to source as it would delay their wedding by up to 1 year. Therefore, instead of delaying the wedding, it would be best if he sold it for the value ($450,000-$480,000) suggested by ReSale. With this equity, they can add it to their combined mortgage of $750,000 that can be secured with their salary, allowing them to purchase available housing options while keeping a significant amount in reserve for contingencies.

What is Alex’s reservation value as he sells his apartment?

In order to determine that, it is important to state that after removing the amount for contingencies, Alex and his wife’s annual income can give them a maximum of $700,000 in mortgages. The advertised price for the highest housing option they can take is $895,000. Therefore, they need an extra $195,000 in equity to finance the house. Additionally, his apartment was initially mortgaged for $275,000, while suggested prices for the apartment are in excess of $400,000. Thus, it is recommended that the reserve value should be higher than the mortgaged price. He should not sell the house for anything below $300,000 to allow him to finance their new home and keep extra funds (at least $105,000) for contingencies.

Part 3: Property Negotiation A)

What is Alex’s BATNA for this negotiation?

If ReSale is to sell his property, Alex will likely generate a maximum of $480,000 in equity and a combined annual salary-backed mortgage of $700,000 (after deducting money for contingencies), bringing the total available funds to $1,180,000. Meanwhile, the house will be sold at auction, and the owner will not accept anything less than $840,000. Therefore, it is recommended that Alex’s BATNA (bid) for this house should be a maximum of $1,000,000, allowing funds for documentation and other contingencies that might arise from such a purchase.

What is Alex’s reservation value as he negotiates for Property A?

For this option, the reserved value should be $1,180,000, which is the total available funding they can assess. They can take funds from the $50,000 they received for contingencies and process documentation for the house. The reason for this reserved value is that there is nothing to rectify in the house as it is in good condition following recent rectifications.

What is the ZOPA range and claimable value for this property negotiation?

Halton (2021) defined ZOPA as the zone of possible agreement or bargaining range, the point where two or more negotiators might be able to find common ground (reach an agreement). This is the point where parties will likely be willing to compromise and strike a deal. It is common for parties, seeking to reach an agreement or find a settlement, to work towards a common goal and reach an area that accommodates at least some of what the parties want. On the other hand, the claimable value is the amount the parties have agreed to pay at that range.

In this case, the seller is not willing to sell the house for anything below $840,000, while Alex’s total funding is $1,180,000 (which is his highest claimable value for the house). However, since the house is being sold at auction, it is difficult to determine the seller’s ZOPA range because while the seller is unwilling to accept anything below $840,000 (the lowest claimable value for the seller), the bid can go as high as possible.

Part 4: Property B Negotiation

What is Alex’s BATNA for this negotiation?

If ReSale is to sell his property, Alex will likely generate a maximum of $480,000 in equity and a combined annual salary-backed mortgage of $700,000 (after deducting money for contingencies), bringing the total available funds to $1,180,000. On the other hand, the advertised price for this house is $895,000, while a similar house sold for $910,000 in the same location. Therefore, his BATNA would be the advertised price ($895,000) or below it. The seller (owner) will likely be seeking higher pay due to a similar house being sold for $15,000 extra. However, Alex should not pay more because the house would need some modernization once purchased and that would imply added investments. On the same note, he could use the fact that the house would need modernization to seek more discounts or bring the price down, it will all depend on his ability to convince the seller with that.

What is Alex’s reservation value as he negotiates for Property B?

For this option, the reserved value should be $1,180,000, which is the total available funding they can assess. They can take funds from the $50,000 they received for contingencies and process documentation for the house. The reason for this reserved value is that the house has a spacious compound, is considered a good place for raising a new home, and the owners have obtained a permit for expansion. However, since a similar house in the same location was sold for $910,000, it am confident that if proper negotiation tactics are employed, the house should not go higher than that, especially as it would need some modernization.

What is the ZOPA range and claimable value for this property negotiation?

The house is a fixed-price sale; that is to say, the owners have advertised a specific price and the house can be outrightly purchased at that price. However, a similar house was sold for an extra $15,000 in the same location. Therefore, the ZOPA ranges from $895,000 to $910,000, and it is the claimable value for the house. This is below Alex’s highest available fund to purchase the house, making it a good buy. However, the fact that the house would need some modernization could be used to bring the ZOPA range down to Alex’s favor.

Part 5: Alex and Sally's Advice

Sir and ma’am, I have reviewed the data available to me about your funding and housing options, and I have reached a recommended decision that I think you should consider. First is the agent that should sell the house. ReSale is the best option in terms of the agent that should sell your house. The main reason is that it is the only agent among those that valued your apartment that specializes in selling apartments and small dwellings. While Ventis International is suggesting a higher value of $500,000, which would imply an extra sale revenue of $20,000, it is imperative that we focus on the agent that sells the house within the shortest possible time in order to allow you to attain your desired goals—of wedding and moving into a new house.

Secondly, whatever decision you make, it is important to note that your available fund for a new house is $1,180,000 (which is a combination of the highest possible equity from the house, $480,000, and the highest mortgage ($700,000 after deducting $50,000 for contingencies) that you can get with your combined annual salary). Therefore, you should not go beyond this ZOPA range as it would pose huge challenges for you, especially as a new couple starting a new life.

Table 1: House purchase options

Options	Advantage	Disadvantage
A	The house does not need any rectification as it was recently rectified by the owners and it is closer to your working place (5-10 minutes drive) than Option B	You have a good house that has been recently rectified, but the problem is that the owner wants to sell the house through auction and is not willing to accept $840,000, and the parking space can only accommodate one car. The issue here is that your maximum funding for a new house is $1,180,000 while this house is going for sale through action, and this implies that a bidder might place a bid higher than your maximum funding, essentially forcing you out of any potential deal. Additionally, if you manage to secure this one, you need to accept the fact that it can only accommodate one car, which might be challenging for you, as you might likely need two cars for the 5–10 minute journey to your office. Even if you choose another alternative to work and decide to have just one car, you also need to put the comfort of people visiting you into consideration. Where will they park their own car when they visit? Therefore, I do not think that this is a good buy for you as the price is uncertain and the parking space is a little bit limited.
B	On the plus side, it is a 3-bedroom house with 2 parking lots, and while the house might require modernization, it comes with ample space to expand for a growing family, and the owner has obtained a license for a modest expansion. Furthermore, the price is fixed and you can buy it by making an offer equivalent to the advertised price. Even if the owner wants to increase the price to the value of a similar house sold in the same location, that is $910,000, it is still below your maximum capital funding from a new house. Thus, I think that this is the right house for you, putting all things into consideration.	On the second option, the seller is willing to sell for $895,000 and a similar house was recently sold for $910,000 in the same location. Therefore, the advertised price might increase by $15,000. Additionally, it would require 25 minutes to move from the house to your respective offices.

Suggested buy

Thus, based on all the available funding options and housing options, I recommend that you choose option B as it will serve both your short-term and long-term housing needs. As their family grow, they can expand their building which is presently 3-bedroom with two parking slots. The expansion license has also been issued.

Options not to take

They should not take Option A. This is because it will be sold via auction and their limited funding might not be enough to buy it through auction. It also has only one car park and no space to expand the house for a growing family.

How to be at advantage during the negotiation

Option A – He should not be in a hurry when placing extra money on his bids and he should increase his bids as little as possible. This is because bidding is filled with uncertainty and applying more patient could allow him to leverage opportunity of buying the house at a cheaper price. 

Option B – He can create an advantage by reaching an agreement as fast as possible to avoid the seller increasing the price as a similar house in the same location was recently sold for a higher price ($15,000 more).

Conclusion

For anyone starting a new life, housing decisions are not easy. This is because it normally entails foregoing certain alternatives in order to arrive at a particular decision. In view of that, this report reviewed a number of housing options for Alex and Sally, while considering their available funding for a new house. Based on the review, it was recommended that they should choose the Option B house. While the house has a few disadvantages over Option A, such as a longer commute to work and the need for modernization, it is important to note that the pros outweigh the cons. This is because it has double parking lots, an extra layer of land for modest expansion, which the owners have obtained a license for, and it is a 3-bedroom house. This decision was reached in consideration of both the short-and long-term goals of Alex and Sally, bearing in mind that they are about to start a new family.

References

Canbolat, N., Erdogan, A., & Yazlik, D.O. (2016). Examining the relationship between thinking styles and technological pedagogical content knowledge of the candidate mathematics teachers. Journal of Education and Training Studies, 4(11), 39-48. https://doi.org/10.11114/jets.v4i11.1819

Fan, J. (2016). The role of thinking styles in career decision-making self-efficacy among university students. Thinking Skills and Creativity, 20, 63-73. https://doi.org/10.1016/j.tsc.2016.03.001

Fink, D., & Garner, S. (2008). Wisdom in Student Assignments: Its Operationalization and Manifestation. Proceedings of the Informing Science & IT Education Conference (In SITE). https://doi.org/10.28945/3222

Galinsky, A. D., & Magee, J. C. (2022, May 9^th). “Power in Negotiation: The Impact on Negotiators and the Negotiation Process”. Harvard Law School – Daily Blog. https://www.pon.harvard.edu/daily/negotiation-skills-daily/how-power-affects-negotiators/

Halton, C. (2021, September 25^th). “Zone Of Possible Agreement (ZOPA)”. Investopedia. https://www.investopedia.com/terms/z/zoneofpossibleagreement.asp

Subramanian, G. (2022, April 7^th). “What is BATNA? How to Find Your Best Alternative to a Negotiated Agreement”. Harvard Law School – Daily Blog. https://www.pon.harvard.edu/daily/batna/translate-your-batna-to-the-current-deal/

Yuan, W., Zhang, L-F., & Fu, M. (2017) Thinking styles and academic stress coping among Chinese secondary school students. Educational Psychology, 37(8), 1015-1025. https://doi.org/10.1080/01443410.2017.1287343

Zhu, C. (2013). Students’ and teachers’ thinking styles and preferred teacher interpersonal behavior. The Journal of Educational Research, 106(5), 399-407. https://doi.org/10.1080/00220671.2012.736431

Appendices

Appendix 1: My thinking preferences

Category	Style	Likes to…
Functions	Legislative
	Executive	I am more of an executive because I like to follow instructions, do what is requested, and adhere to structures. I don’t like criticism and I do whatever is possible to avoid it, thereby, following things the way they are supposed to be followed in order to ensure that I won’t be blamed when things go wrong.
	Judicial
Forms	Monarchic	In line with my ability to function better in an executive way, I am more monarchic in form. This is because I like doing one thing at a time, spending almost all my energy on it until I get it right.
	Hierarchic	However, when I have urgent tasks, that need urgent attention, I might be hierarchic as I can do many things at once, prioritizing what, when, how much time and energy that is dedicated to the thing based on their order of importance.
	Oligarchic
	Anarchic
Levels	Global
	Local	I am local in my level of thinking as I work with detail, specifications, and clear examples about the scenario under consideration.
Scopes	Internal	I prefer to work alone and independent, focusing entirely on the task before me and averting distractions.
	External
Learning	Liberal
	Conservative	I do things in a proven and real manner, following existing traditions as I do not want to make mistakes.