Caveat Emptor?

By — on / Daily, Negotiation Skills

Adapted from “Fair Enough? An Ethical Fitness Quiz for Negotiators,” by Michael Wheeler (professor, Harvard Business School), first published in the Negotiation newsletter.

Imagine that you bought a rustic cabin at its asking price. Now flash-forward a few years. You’ve enjoyed the place immensely but just learned that a motorcycle racetrack will be up and running nearby in a few months. It’s time to put up the “For Sale by Owner” sign.

An eager couple with an expensive car has toured the property and appears ready to make an offer. One of them asks, “Why would you ever want to sell such a beautiful place?” Which of these three options comes closest to your response?

1. “You know, ever since I put up the sign, I’ve been thinking the same thing myself.”
2. “Oh, it just feels like time to try something new.”
3. “I’m worried that the noise from the new motorcycle racetrack may be disturbing.”

In this dilemma, candor is the most relevant ethical dimension. Virtually no one asked about this situation feels compelled to tell the seller the whole truth. Instead, most people try to be scrupulous about what they explicitly say; what goes unsaid is another matter. There’s ample philosophical support for the proposition that other people have the right to rely on the accuracy of what we expressly tell them, but also the responsibility to ask the right questions and listen closely to our answers.

Option 2 is truthful–it’s just not the whole truth. You wouldn’t be moving if it weren’t for the bikers. By contrast, if you’ve already packed your bags and made an offer on another property, option 1 is factually false. Does that make the response any worse morally? Yes, if we adhere to an ethic that our express statements must be honest, and no, if we can convince ourselves that the prospect shouldn’t expect candor in such cases. Everyone knows the meaning of caveat emptor.

“Buyer beware” doesn’t mean that anything goes, however. What you say-and don’t say-at the bargaining table ultimately must meet legal standards. Specifically, you’re liable for fraud if you make a material misrepresentation on which others reasonably rely to their detriment. Those italicized words have particular significance. The falsehood or mistake has to be germane to the deal. If the buyer would have made the purchase even knowing the truth, there’s no fraud. Likewise, reliance has to be reasonable. Someone who buys an elixir on the promise it will double his IQ may have a tough time making his case. Finally, fraud law specifies that ill treatment is not sufficient; actual harm has to be inflicted.

When faced with a situation such as this, try applying the universality standard: Would you advise others to behave as you intend to? You may find that astute buyers who hear response 1 or 2 might press for further information. “Is there anything else we should know?” they might ask, or, “Are there any problems that might affect the value of the house?” Evasive answers could get you into trouble. The law of fraud bolsters other people’s confidence that you will deliver what you’ve promised and thus promotes mutually beneficial deals.

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