Schmuck Insurance

This weekend I was introduced to the concept of Schmuck Insurance.

The teacher was a real estate developer who had learned about it the hard way at the end of last year.

The developer and his partners were finishing a new building in New York. They quickly found a prospective buyer for the first unit and negotiated the sale price.

At the last minute, sensing the unease in the financial and real estate markets, the buyer asked for Schmuck Insurance. A guarantee that if the next unit was sold at a discount that he would retroactively receive the same discount.

The developer and his partners said no. A month later they said yes. At which point the buyer walked.

He walked in part because the market had worsened in the meantime.

But mostly he walked because his concern that he might become a schmuck was replaced by his belief that he would now be a schmuck if he said yes.

During a negotiation, if I ask you to give me a piece of protection I see myself as smart and taking care of myself. An intellectual and emotional payment to my self esteem.

If you agree with my request, I see you as protecting my interests as well as my own. A partnership.

If, however, you say no at first and yes later, I believe something has changed which you’re not telling me.

Which makes you untrustworthy. And me a schmuck if I say yes.

The buyer came back recently and closed the deal for sixty percent of the original price.

In every negotiation start by first defining your own worst case scenario. What’s your walk-away threshold. The deal which you’d be a fool to accept.

This is your Schmuck Insurance.

Which makes it simple to then do two things.

One. Make a worthwhile deal the first time around.

Two. Avoid being the schmuck.