It is rarely a waste of time to try to negotiate a compromise with the other party. Indeed, many states all but require you to make the attempt. You can do this by writing a formal demand letter. But, first things first. Before you reach for pen and paper, try to talk to the person with whom you are having the dispute. The wisdom of trying to talk out a dispute may seem obvious. But apparently it isn't, since I am frequently consulted by someone with an "insurmountable dispute" who has never once tried to discuss it calmly with the other party. I suspect the reason for this is that many of us have a strong psychological barrier to contacting people we are mad at, especially if we have already exchanged heated words. If you fall into this category, perhaps it will be easier to pick up the phone if you remind yourself that a willingness to compromise is not a sign of weakness. After all, it was Winston Churchill, one of the 20th century's greatest warriors, who said, "I would rather jaw, jaw, jaw than war, war, war."
A compromise offer is not binding. It's important to know that an offer of compromise–whether made orally or in writing–does not legally bind the person making it to sue for that amount if the compromise is not accepted. Thus, you can make an oral or written demand for $2,000, then offer to compromise for $1,500, and, if your compromise offer is turned down, still sue for $2,000. If the person you are suing tries to tell the judge you offered to settle for less, the judge will not consider this to be relevant.
In an effort to help you arrive at a good compromise, here are a few of general negotiation rules, which, of course, you should modify to fit the circumstances:
- If you are the potential plaintiff, start by offering to settle for about 20% less than your original written demand. Why 20%? If you offer a smaller discount, chances are you won't be taken seriously. Offer a bigger discount and you're giving away too much too soon.
- If you are the potential defendant, and you conclude that the plaintiff probably has a decent case, start by offering to pay about 50% of the amount demanded. This should be enough to start negotiations without conceding too much too soon. Many plaintiffs will ultimately agree to knock as much as one third off their original demand, in order to save the time and trouble of going to court.
- Money isn't always at the root of the problem. If you pay close attention to the other party's concerns, you may find that the key to arriving at an agreement can be found elsewhere. For example, a print shop owner who refuses to repay you $2,000 for a screwed-up job might agree to do the disputed job over and give you a discount on the next one, in exchange for an agreement to continue to work together and speak well of each other in the future.
- The patient negotiator has the edge. Many Americans are in such a big hurry to arrive at a solution that they agree to a bad one. Take your time. If you make a lowball offer and the other person gets mad and hangs up, you can always wait a few days and call back with a slightly sweetened one.
- Good negotiators rarely change their position quickly, even if the other side does. Instead, they raise or lower their offer in very small increments. For example, if your opponent counters your original offer of a 20% reduction in exchange for a settlement by offering to pay 50% of what you originally asked for, you'll do best by not jumping to accept or even agreeing to split the difference. Instead, counter by reducing your original demand by an additional 5%-10%. Often this will result in your opponent further improving his or her offer. And even if that doesn't happen, you haven't lost anything, because once someone has made a 50% offer, it is unlikely to be withdrawn.
Why it's rarely wise to split the difference. Often, an inexperienced negotiator will quickly agree to the other party's offer to split the difference or settle a claim for 50¢ on the dollar. It's rarely wise to do this. After all, by proposing to split the difference, your opponent has all but conceded he or she will pay that amount. Better to counter by reducing your first offer by a smaller amount and leave the next move up to your opponent.
- Estimate how much money a compromise settlement is worth to you, given the fact that a settlement eliminates the time and aggravation of going to court. I do this by putting a dollar value on my time and then multiplying by the number of hours I estimate a court fight will take. Also, based on the facts of your case, take into consideration the chances that you might lose or get less than you ask for. In a study of 996 small claims cases that actually went to trial, only 32% resulted in the plaintiff receiving 100% of the amount claimed; 22% resulted in the plaintiff getting between 50% and 100% of the amount claimed; 20% resulted in the plaintiff getting less than half; and in 26% of the cases, the plaintiff got nothing at all. (See Small Claims and Traffic Courts, by John Goerdt (National Center for State Courts).)
EXAMPLE: In a dispute my business had with a phone company, we originally asked for $5,000. The phone company admitted some liability and offered to compromise. After considering the value of the time our compnay would invest bringing the dispute to court, we decided that it would make sense to compromise for $3,500. And although we were sure we had a strong case, we had to admit that there was some possibility the judge would not agree, so we decided to subtract another $500 and accept a settlement for $3,000. Unfortunately, after several conversations and letters, the phone company wouldn't offer a dime more than $2,000. Since this was too low, we decided to go to court. As it happened, the small claims judge awarded us the entire $5,000. But then the phone company appealed and received a new trial. After the case was presented over again, the second judge reduced our final award to $3,500. Considering that it was easier to prepare the case the second time, we still probably came out ahead of the game, as compared to accepting the $2,000. In truth, however, given the time needed to prepare for two court presentations, we probably netted only about $500 more.
If you settle, sign a written agreement, pronto. If you talk things out with your opponent, write down your agreement as soon as possible. Oral settlement agreements, especially between people who have little confidence in one another, are often not worth the breath used to express them. And writing down an agreement gives each party a chance to see whether they really have arrived at a complete understanding. Often one or more details must still be hashed out.
Learn more about negotiating. On several occasions when I have been involved in important negotiations, I've gotten help by rereading Getting to Yes: Negotiating Agreement Without Giving In, by Bruce Patton, Roger Fisher, and William Ury (Penguin). I also like Getting Past No, by William Ury (Bantam). Neighbor Law: Fences, Trees, Boundaries & Noise, by Cora Jordan and Emily Doskow (Nolo), has excellent advice on negotiating neighborhood quarrels.