Last week, I sat in a mediation representing a large company that was one of several defendants in a lawsuit.

 

Five or six different parties, including the plaintiffs, sat down at 9:30 in the morning. The plaintiffs' opening settlement demand was $10.6 million. Meanwhile, the defendants collectively offered what amounted to a nuisance-value settlement somewhere in the range of $200,000.

 

And then the process began.

 

The mediator spent the day going back and forth between rooms, hammering each side on the weaknesses in their case, the risks of going to trial, the expense of continuing the litigation, and all of the things that could go wrong if they didn't settle.

 

By the end of the day, the plaintiffs walked away with significantly less than their opening $10.6 million demand. The defendants begrudgingly had to come up quite a bit from where they started. Ultimately, the case settled somewhere in the million-dollar range.

 

If you're an attorney—and particularly if you're a litigator—there is absolutely nothing unusual about this story.

 

Plaintiff starts absurdly high. Defendant starts absurdly low. Everyone knows neither opening number is particularly realistic. Then you negotiate.

Where you ultimately land depends on the facts, the law, the lawyers, the leverage on each side, and probably how badly everyone wants to go home. Maybe you end up somewhere near the middle. Maybe a savvy attorney or particularly good set of facts pushes the settlement considerably to one side or the other.

 

It is also a terrible way to sell a house.

 

There is a fundamental economic difference between negotiating a legal settlement and selling a home: selling a home involves supply, demand, and competition.

 

We know that buyers will pay more for a home when they are competing against other buyers than they will when they are negotiating against a seller with no other offers.

 

That competitive dynamic simply doesn't exist in the same way in a legal settlement.

 

The two defendants in my mediation weren't fighting with each other over who could pay the plaintiffs more money. There wasn't another buyer waiting outside the mediation room offering $1.1 million and forcing us to offer $1.2 million if we wanted the deal.

 

A legal settlement is primarily a risk calculation.

 

Both sides are evaluating the likely cost and outcome of continuing the litigation against the certainty of settling it now. The plaintiff is weighing the settlement offer against the possibility of going to trial, winning, and receiving a larger judgment—while also accounting for the possibility of losing and receiving nothing. The defendant is making the inverse calculation: How much is it worth paying today to eliminate the expense and uncertainty of trial and the risk of a significant adverse judgment?

 

The opening numbers can therefore be extreme because the purpose of those numbers is to establish negotiating positions between parties who are already at the table.

 

 

And once they're there, ideally you don't want just one.

You want competition.

 

That is the critical distinction I find lawyers sometimes forget when they become sellers themselves. We are so accustomed to negotiating from opposite ends toward an acceptable middle that it feels natural to approach a list price the same way.

 

But when you put on your seller hat, you have to change gears.

 

In residential real estate, I regularly sit down with sellers—many of whom are lawyers—and hear some version of:

 

 

Or:

 

It sounds logical. Particularly if you've spent your professional life negotiating disputes.

 

But in my experience, this mindset almost always nets a seller less than they could have received had they priced the home strategically from the beginning.

 

The reason is simple: your list price is not an opening demand. It is a marketing tool.

 

Its purpose is to spur buyer activity. You want people through the door. You want interest. You want offers. And, in the best-case scenario, you want multiple interested buyers who understand that if they want the house, they may have to compete for it.

 

That dynamic—not an artificially high starting number—is what gives a seller leverage.

 

This is probably the most counterintuitive part for sellers.

Common sense tells us that if a buyer loves a house but thinks it is overpriced, they'll simply make an offer at the price they think it's worth.

Sometimes they do.

 

 

Buyers see an asking price that feels disconnected from the market and simply sit on the sidelines. They may like the house. They may even be willing to pay a price that the seller would happily accept. But if the gap feels too large, they don't necessarily view the list price as the beginning of a negotiation.

 

They just don't engage.

 

And then the house sits.

 

Once a property starts accumulating days on market, something interesting happens: the days themselves become part of the property's story.

A buyer seeing the house three or four weeks later doesn't necessarily know that it hasn't sold because the seller started with an overly ambitious price.

They just know it hasn't sold.

 

And buyers start asking questions.

 

There may be absolutely nothing wrong with the property. But once a home has been sitting, buyers often assume there is—or, at minimum, they assume other buyers have already rejected it.

 

And then another psychological shift occurs.

 

Instead of thinking, I love this house and someone else might get it, the buyer starts thinking, They've been sitting for a while. How low do you think they'll go?

 

That is exactly the opposite negotiating posture you want to create.

Ironically, the seller who started high because they wanted to "leave room to negotiate" may ultimately create more room for the buyer to negotiate downward than they ever intended.

 

A buyer who might have paid aggressively for the property when it was fresh and generating excitement may come back weeks later expecting a substantial discount.

 

When I'm representing a company in a lawsuit, starting with an aggressive negotiating position can make perfect sense. Nobody thinks a $10.6 million opening demand means the plaintiffs actually expect someone to immediately write them a check for $10.6 million.

Everyone understands the game.

 

When you put on your seller hat, you have to take off your settlement hat.

Don't ask, What's the highest number we can put on the house so we have somewhere to negotiate down from?

 

Ask, what price will create the strongest possible market for this house?

Because your list price isn't your settlement demand.

It's your marketing strategy.

 

And ultimately, the market—not the number you type into the MLS—is going to determine what your home is worth.