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    Session 7A-Salt Harbor Faculty Debrief

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    im master
    Brim and Easterly were in a dispute over commercial use of a property lot that Brim owned. Brim assumed an 80% chance of winning the case and $20k in litigation costs, while Easterly assumed a 50% chance of winning and $25k in costs. Easterly's potential loss was $350k plus litigation costs if they lost, while their alternative site cost was $200k. After losing multiple appeals, Easterly offered $220k which Brim refused, before ultimately agreeing to a $250k deal plus $25k in extras. In hindsight, Brim's lawyer realized they underestimated the risks of escalation and it was easy to get greedy in negotiations.

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    Session 7A-Salt Harbor Faculty Debrief

    Uploaded by

    im master
    11 views20 pages
    Brim and Easterly were in a dispute over commercial use of a property lot that Brim owned. Brim assumed an 80% chance of winning the case and $20k in litigation costs, while Easterly assumed a 50% chance of winning and $25k in costs. Easterly's potential loss was $350k plus litigation costs if they lost, while their alternative site cost was $200k. After losing multiple appeals, Easterly offered $220k which Brim refused, before ultimately agreeing to a $250k deal plus $25k in extras. In hindsight, Brim's lawyer realized they underestimated the risks of escalation and it was easy to get greedy in negotiations.

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    Session 7A-Salt harbor Faculty debrief

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    Brim and Easterly were in a dispute over commercial use of a property lot that Brim owned. Brim assumed an 80% chance of winning the case and $20k in litigation costs, while Easterly assumed a 50% chance of winning and $25k in costs. Easterly's potential loss was $350k plus litigation costs if they lost, while their alternative site cost was $200k. After losing multiple appeals, Easterly offered $220k which Brim refused, before ultimately agreeing to a $250k deal plus $25k in extras. In hindsight, Brim's lawyer realized they underestimated the risks of escalation and it was easy to get greedy in negotiations.

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    © All Rights Reserved
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    11 views20 pages

    Session 7A-Salt Harbor Faculty Debrief

    Uploaded by

    im master
    Brim and Easterly were in a dispute over commercial use of a property lot that Brim owned. Brim assumed an 80% chance of winning the case and $20k in litigation costs, while Easterly assumed a 50% chance of winning and $25k in costs. Easterly's potential loss was $350k plus litigation costs if they lost, while their alternative site cost was $200k. After losing multiple appeals, Easterly offered $220k which Brim refused, before ultimately agreeing to a $250k deal plus $25k in extras. In hindsight, Brim's lawyer realized they underestimated the risks of escalation and it was easy to get greedy in negotiations.

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    © All Rights Reserved
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    Salt Harbor A, B–Faculty debrief

    What are Brim’s assumptions

    chances of winning 80:20

    What is lost if case is Losing only blocks


    lost? business

    what still could be built Residence

    Residential value of lot $ 125K +/- 20%


    What are Brim’s assumptions

    $100K plus $10K in


    How much Brims paid?
    related expenses
    Cost of litigation Brims $20K

    Alternate site cost $165K

    Court case desirable? No (why?)


    What are Easterly (buyer) assumptions

    chances of winning 50:50

    what still could be built Residence

    Residential value of lot $ 100K

    What is lost with case? $350K +/- 10%

    Cost of litigation Easterly $25K


    Why diff. agreements possible

    Brims bought as commercial property


    / Buyers scared due to legal issue

    90-
    100
    Easterly
    potential loss 120-
    140
    Fair price for Brim
    220
    +
    200- 140- Brim Alternate site cost
    220 170

    170-
    200

    Easterly Est. Alternate


    site cost for Brim
    Opportunity cost (OC) - the next best alternative foregone

    Limiting fixed resource: 2 hours available before exam

    Last Min. revision Relax with a game of tennis

    OC – alternative to last
    min. revision foregone
    What is the opportunity cost-Poll?

    New car price $12K?

    3 years ago bought a


    Old car price $10K? new car for $10K -Now
    depreciated value $3K

    Old car dep. price $3K?


    Opportunity cost (OC) – for keep the car

    sell old and buy new car Buy new while Keeping the old car

    OC – 3K that could be
    realised by selling old car
    forgone
    Salt Harbor Opportunity cost (OC)

    Brims: OC – alternative of bought


    parcel foregone

    Bought Parcel:100K Alternate location: 170K

    Easterly: OC – alternative of bought


    parcel foregone

    Bought Parcel:100K Alternate location: 200K


    How easterly could have strategized?
    Do not anchor ZOPA
    on OC estimate
    01

    02
    E
    OC not relevant
    for negotiation
    (larger than parcel Try to find other
    size)? party OC

    B
    04
    Offer joint search

    + 03
    E B
    Working out Easterly’s BATNA

    +ves -ves

    saving legal Abandon legal Challenge absorbing -Ve impact


    costs of Brim’s coffee shop

    Keep Pursue regulatory claims Escalate potential


    pressure settlement value

    Get out of business Lose future


    Save potential
    business
    Losses
    Easterly frozen out Expected cost to Easterly
    Easterly BATNA
    (=$350K+$25K)
    Win: commercial use LOW
    not ON=> Brim sells

    pw
    High $125K
    (=$25K+$100K)
    Easterly outbids other
    Go to residential bidders
    Court Brim builds/sells to (=$350K+$75K)
    others

    LOW
    pl

    Lose: commercial
    use is OK High
    $75K+S2
    Brim settles for S2
    Discounted S 235K
    Notional court
    case nuisance
    cost=10K

    Walkaway
    value= 245K
    Brim’s BATNA?

    Forced? defend the suit Purpose?

    Chances? hold on to property for Property


    future appreciation business?

    Selling on residential
    Alternate site Start business
    market
    asap

    What is Brim’s BATNA


    Brim’s court Sell in commercial Expected Financials
    market
    option (=$140K-$25K)
    Win: commercial use LOW
    OK

    pw
    High X (=$X-$25K)

    Sell to Easterly at “X”


    Go to
    Court Brim sells in residential (=$100K-$75K)
    market

    LOW 100K- $75K


    pl

    Lose: commercial
    use is not OK High
    110K- $75K
    Brim Sells to easterly
    Brim’s court option
    145k -25K

    -25K

    -125K

    125 K -125K

    X= 0.8 (10+0.9X)=8+0.9X
    Discounted 80K
    court case nuisance cost=10K
    Walkaway value= 70K
    BATNA- Sale in residential market
    Post analysis: Barriers to agreement
    What really Happened
    Exercise

    What Really happened

    Easterly lost early challenge

    Easterly makes $120K offer..Brims rejects…No counter.

    Easterly loses more appeals..goes to court

    Responding to call Brim asks Easterly for best offer

    Easterly offers USD220K…Brim refuses

    Deal at USD 250K plus extras (USD 25K)


    Hindsight..Brims had stronger case / less pressure
    Exercise

    Lesson’s learnt: Brim’s lawyer


    Never underestimate risks of escalation

    They (buyer) transformed a business matter


    into emotional battle

    “Avoid day-late-pound short” problem

    Its easy to get greedy

    Watch out for Principal-agent conflict

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