When you’re negotiating, it’s best not to lead off with your very best offer. That sets you up for a “take it or leave it” situation (which isn’t actually a negotiation).
Instead, you want to start with a good offer, knowing you have a little room to negotiate, and adjust. If you offer $10,000 knowing you could realistically afford $12,000, you might get lucky and strike a deal at $10,500. Much better than coming right out and saying $12,000 from the start.
Taken to an extreme, you want to start with a really low offer, then negotiate to an offer that is still low. But you run the ultimate risk of making an offer that is offensively bad. This actually happened to me at a car dealership recently. After looking at a $18,000 they proposed terms that required a $3,000 down payment and 72 months of payments of $249/month. For those following along at home, that is a total of over $28,000 for an $18,000 car!
Now I know that there is interest, but for that deal to add up, they would have needed to calculate an interest rate of 18.8% compared ton average rate around 4%.
I wasn’t quick enough to realize at the time, but when I went home and crunched the numbers I realized this was an offensively bad offer. Just atrocious.
Did they think it might set a low bar from which we could begin negotiations? Probably. But at the end of the day, they lost the chance because the offer was so bad.