Exercise 2 Distributive Bargaining CASE

Introduction:

The following case is to be used as a distributive bargaining or negotiation exercise. Distributive bargaining is sometimes called competitive or win-lose bargaining. In a distributive bargaining situation, the goals of one party are usually in fundamental, direct conflict with the goals of the other party. Resources are fixed and limited in this type of situation and both parties want to maximize their share of the "pie".

Before beginning this exercise, students are required to have read the text material related to distributive bargaining and will be expected to apply what they learned to this situation. Each party to the negotiation situation will have common information on which to base their bargaining and each will have separate information that is known only to them.

While negotiations often take place over protracted periods of time, students are to assume that they must try to negotiate the deal within the two-hour class time frame. Although this is somewhat artificial, students will be graded on how well they have understood and apply the concepts learned in class and covered in their readings.

The Situation:

A 20-acre parcel of land has become available on the outskirts of a growing urban area about 80 kilometres north of the Greater Toronto Area (GTA) - known as Barrie, Ontario. The acreage is on the periphery (within 2 kilometres) of Barrie's city limits. Since Barrie offers a desirable place to raise a family, is growing as a commercial and residential centre a more families move to the region and many travel to work in the Greater Toronto region (it within a 45-minute drive to and from Toronto) the location has many favourable aspects

On the other hand, it is becoming a consideration that agricultural land close to large settlements will be essential to the future source of local food supply. In addition, the export potential of food/crops is becoming more important, given the continuing urbanization of society, as evidenced by the growth of large metropolitan centres like Toronto and the increasing consumption of a variety of foods and products in emerging markets. Moreover, the rising cost of transportation along with the loss of productive land for these purposes in the past has made it all the more imperative to protect these lands from continued development. You feel that this growing public concern could hamper the sale or at the very least, the future value, from a commercial standpoint, of the agricultural land in question.

At the present time the 20-acre parcel of land is zoned agricultural/residential but there has been some discussion that it could be rezoned to mixed industrial/residential thereby opening up lucrative development possibilities. According to the records available with Barrie's municipal office, similar land it its current agricultural state sells for approximately $8,000.00/acre.

A meeting will take place shortly between a potential buyer of this parcel (who is a real estate developer1), the real estate agent acting on behalf of the potential buyer, the seller (a farmer whose family has owned the land for over 100 years) and a real estate agent acting on behalf of the seller.

1 A real estate developer is an individual who oversees the purchase existing or undeveloped residential, commercial or industrial real estate (including securing zoning and municipal approvals), makes improvements to any buildings on it or constructs new buildings, and sells or leases the improved land or buildings for profit.

COURSE NAME: Negotiations Course Number: IBM1006

The Buyer's Agent's Circumstances:

You are a savvy realtor who has been a real estate agent for 15 years. You have all your professional certifications as an agent as well as additional certifications for property appraisals. You have represented both sides of several commercial property sales and secured the necessary development approvals for new retail/commercial projects in the last 5 years. You have also gained a reputation for being a very tough negotiator on behalf of you clients. A well-known developer who has undertaken several projects in Barrie has asked you to represent him in the prospective purchase of the 20-acre tract of land recently placed on the market by a farming family who has owned it for many years.

In your experience, and based upon what you have learned from some of your contacts in the City of Barrie's administration, while it is likely that where the parcel of land sits is a good place for the next phase of urban expansion, there have also been a growing resistance from wide cross section of voters (and some municipal officials) to the sale of prime agricultural land close to urban centres just for the sake of residential and commercial development (for the reasons noted in the situation background).

Every purchase and sale of land has its risks and you have conveyed this to the prospective buyer. However, the buyer has made it clear to you that he wants the 20-acre parcel of land and is prepared to take the risks related to its future development. Nevertheless, the possible buyer/developer has made it clear that he is not a speculator and does not want the land at any price. For that matter he does not need to have the burden of carrying land and all the associated costs such as taxes and interest on debt he will carry (amounting to 80%) of the price. Although interest rates are low today it is widely expected that these rates will rise substantially over the next 1-2 years. The developer knows the approximate price for agricultural land and wants you to negotiate a deal for him that is as close as possible to its current value. The developer thinks that it is important to make a deal now, so he can take advantage of the uncertainty surrounding the parcel of land.

You have scheduled an urgent meeting with the seller. You intend to make this negotiation a confirmation of your reputation as a realtor and build your reputation on the commercial side of the business to complete deals in the interests of your clients.

The Buyer's Circumstances:

You have been a developer of real estate now for several years and have purchased two previous parcels of land and then turned them into mixed residential and light industrial/retail neighborhoods - making a lot of money in the process. You love doing deals and then turning vacant land into a productive and vibrant community that houses both growing families and small businesses. You have become aware of a 20-acre

COURSE NAME: Negotiations Course Number: IBM1006

tract of land recently placed on the market by a farming family who has owned it for many years. You have called a Real Estate agent who you know and wish to use in this negotiation because you have heard that she has a very good reputation for being a shrewd negotiator.

In your experience, and based upon what you have learned from some of your contacts in the City of Barrie's administration, while it is likely that where the parcel of land sits is a good place for the next phase of urban expansion, there have also been a growing resistance from wide cross section of voters (and some municipal officials) to the sale of prime agricultural land close to urban centres just for the sake of residential and commercial development (for the reasons noted in the situation background). You feel that this growing public concern could hamper the sale or at the very least, the future value, from a commercial standpoint, of the agricultural land in question.

Every purchase and sale of land has its risks but you see this as an excellent opportunity for future development. However, having said that, you are not a speculator and do not want the land at any price. For that matter you do not need to have the burden of carrying land and all the associated costs such as taxes and interest on debt you will carry (amounting to 80%) of the price. Although interest rates are low today it is widely expected that these rates will rise substantially over the next 1-2 years. You know the approximate price for agricultural land and wish to negotiate a deal that is as close as possible to its current value. You also think that it is important to make a deal now as in his view he can take advantage of the uncertainty surrounding the parcel of land.

You and your agent have scheduled an urgent meeting with the seller. You intend to do whatever you can to purchase this land given the opportunity it presents.

COURSE NAME: Negotiations Course Number: IBM1006

Negotiation Exercise 1

The Seller's Circumstances:

You are the owner of 20 acres available for sale just outside the city of Barrie. For the past 100 plus years your family has farmed this land. As the current head of the household - in your mid-forties - you are still farming on this land and had hoped to pass it on to your son who is currently attending Guelph University, majoring in Agricultural Sciences. While your son has a possible interest in the farm you are not 100% certain of his intentions. He has recently spoken of pursuing a Masters degree and then later his PhD to specialize in hybrid seed research.

One thing of which you are certain is that this land is going to be much more valuable to a developer given what is expected to happen with the future expansion of Barrie. According to your cousin who works in the Barrie municipal office, if the city continues to expand as it has for the past 10 years, your acreage will be the next place that will be developed for both light industrial and residential purposes. If this is the case, your cousin has told you that under these circumstances your land would be worth $20,000.00 - $30,000.00 per acre. At these prices you could undertake an early retirement (within 10 years) if you invest the proceeds wisely. Alternatively, you could purchase another farmland further west of the city and continue farming there. The "bottom line" is that you know the land is - and will be - worth much more than the $8000.00 benchmark for existing agricultural land.

You have therefore put the acreage on the market to see if you can get what you think it is worth. In fact, the more you think about it, the more you would like to sell the land and move on to the next phase of your life.

You have received a call from a real estate agent whom you know of but do not know personally. Although you have never met her, you have heard that she is a "shrewd operator" and may be acting on behalf of a developer. Your meeting will take place within the next 24 hours and you would like to negotiate a deal. You get on the phone to your Real Estate Agent and ask them to attend the meeting to assist you with the negotiation.

COURSE NAME: Negotiations Course Number: IBM1006

Negotiation Exercise

The Seller's Agent's Circumstances:

You are a very experienced real estate agent who has represented clients in real estate transactions for the past 20 years. You have lived in Barrie all your life and know just about everyone in town. You are a member of the local Rotary and Chamber of Commerce and have contributed to many charitable projects in the community.

The head of a family that you have known for many years has just called you advised you that the 20 acre parcel of land that he has placed on the market just outside the city of Barrie has a prospective buyer (from whom he has been contacted through another agent) and he would like you to represent him in this possible transaction. For the past 100 plus years his family has farmed this land and in fact he is still doing so, hoping to pass it on to his son who is currently attending Guelph University, majoring in Agricultural Sciences. However, in recent times he believes that his son would rather pursue his Masters degree and then later his PhD to specialize in hybrid seed research - and is therefore no longer interested in the farm.

You know from your experience that this land is going to be much more valuable to a developer given what is expected to happen with the future expansion of Barrie. If the city continues to expand as it has for the past 10 years, this acreage you believe that this area will be the next place that will be developed for both light industrial and residential purposes. Consequently, it conceivable, based upon current property values, this land would be worth $20,000.00 - $30,000.00 per acre. You know that if you were able to negotiate this sale price for your client he may either be able to take an early retirement (within 10 years) or at the very least purchase another farmland further west of the city and continue farming there.

The "bottom line" is that you know the land is - and will be - worth much more than the $8000.00 benchmark for existing agricultural land. You are eager to act on behalf of your client in this negotiation and look forward to the upcoming meeting with the prospective buyer and their agent.

COURSE NAME: Negotiations Course Number: IBM1006

Questions - 70 Marks:

This is an Individual Assignment. Provide essay style responses to the questions below. Submit response via Blackboard.

Plagiarism in any way will result in a grade of zero for the entire assignment.

1. Identify a few intangible factors related to this negotiation and explain why each are intangible. (5 Marks)

2. Identify a few tangible factors related to this negotiation and explain why each are tangible. (5 Marks)

3. Identify and provide justification for why you chose the following: (20 Marks)

a. Seller's Asking Price

b. Buyer's Target Price

c. Seller's Target Price

d. Seller's Resistance Point

e. Buyer's Resistance Point

4. Identify how the Seller could influence the Buyer's Resistance Point and explain why this strategy could work. (10 Marks)

5. Identify how the Buyer could influence the Seller's Resistance Point and explain why this strategy could work. (10 Marks)

6. Identify Concessions that the Buyer and Seller could offer to reach a successful outcome and explain why this strategy would work. (5 Marks)

7. Explain which strategy the Buyer and Seller will use to "Close the Deal" and explain why you chose the Stratergy .

Expert Answer