Business Negotiation October 3, 2013

When is it Wise to Buy Now and Negotiate Later? Is it Better for the Buyer or Seller?

Does it ever make sense for a buyer to authorize a seller to star work before an agreement is reached? The answer is not “yes” or “no.” In most cases, it’s a matter of business judgment.

In a typical “buy now-negotiate later” arrangement, the buyer needs something started quickly and asks the seller to begin immediately on what is usually a time and material basis. Limited funds are allocated to keep the work going. The parties agree to negotiate and finalize a contract later.

Such an arrangement poses serious negatives from the buyer’s standpoint. The buyer gets locked in to the seller as a sole-source. Aggressive sellers find it easy to exploit these buyer disadvantages. They can use their sole-source power position at negotiation time to charge as much as the distressed buyer can bear. Not all sellers are so aggressive, but the potential for a buyer to pay dearly is real when they have to negotiate after they have authorized the seller to proceed.

Despite these disadvantages, it is sometimes in the buyer’s best interest to negotiate after work is started or even after it is done. “Buy now-Negotiate later” may be called for under the following conditions:

1. When there is no time to negotiate. An example would be when a pipe in your house is leaking and the basement is flooded.
2. When the buyer wants to find out if the seller knows what they are doing. Doing part of the job may reveal the seller’s competence or lack of it.
3. If the seller is willing to commit to a “not-to-exceed” dollar amount. In that case the buyer is aware of the most he or she will have to pay.
4. When the seller’s history shows that they are unlikely to exploit customers. The smart buyer asks for references and checks them.
5. When the job cannot be estimated until enough work is accomplished to provide visibility. For instance, a contractor repairing termite damage to a foundation might not be able to make a realistic estimate until the extent of the damage is uncovered.
6. When the buyer believes that the seller’s price is heavily loaded with problems and probably costs that are unlikely to occur. In that case it may be wise to negotiate later or to let the seller complete the job on a time and material basis.
7. In the rare situation where the seller’s bargaining position will be worse later. This may occur when the seller is afraid to lose the job in the process because they need it to keep their people working.

For the seller, “buy now-negotiate later” is usually advantageous, but not always. A seller may be better off saying no to “buy now-negotiate later” because they may get a better price before the work is started than after is it completed.