Congratulations — They're Negotiating
I'm Sergei Tokmakov (CA Bar #279869), and I've negotiated hundreds of settlements over the past decade. Here's what I tell clients who receive lowball offers: this is progress.
Why? Because they responded. They didn't ignore you or outright reject your claim. They made an offer, which means:
- They acknowledge some level of liability
- They're willing to pay something to make this go away
- They're open to negotiation
- You have leverage
Your job now is to figure out: (1) what's a reasonable settlement given the strength of your case, and (2) how to counter their offer in a way that moves them closer to that number.
Step 1: Evaluate the Offer
Before you reject or accept their offer, analyze whether it's reasonable. Here's my framework:
Calculate Your "True Damages"
Your demand letter probably included some inflation (most do). Now be honest with yourself about what you're actually owed:
- Direct economic damages: Actual money lost (unpaid wages, cost of repairs, price of product, etc.)
- Consequential damages: Additional losses caused by their breach (late fees you incurred, lost business opportunities, etc.)
- Statutory damages: If a statute provides for damages (e.g., wage law violations, consumer protection violations), what does the statute allow?
- Attorney fees and costs: Can you recover these under your contract or statute? If yes, include them.
Add these up. That's your "true damages." Everything else (emotional distress, punitive damages, etc.) is harder to prove and less likely to be awarded.
Settlement Range Calculator
True Damages: $______ (your actual losses)
Strength of case: Rate 1-10 (10 = you have perfect evidence, 1 = weak case)
Expected settlement range:
- Strong case (8-10): 70-90% of true damages
- Moderate case (5-7): 50-70% of true damages
- Weak case (1-4): 30-50% of true damages
Example: True damages = $5,000. Case strength = 7/10. Reasonable settlement = $2,500 - $3,500.
Factor in Litigation Risk
If you reject their offer and go to court, what are the risks?
- Cost of litigation: Small claims filing fee ($30-$100). Civil court filing fee ($225-$450) plus attorney fees if you need one.
- Time investment: Small claims takes 2-4 months. Civil litigation takes 12-24 months.
- Risk of losing: If you lose, you get nothing. If they win in civil court, they might get their attorney fees paid by you (if your contract or statute allows it).
- Collection risk: Even if you win a judgment, can they pay it? Collecting judgments is hard if they have no assets.
A settlement avoids all of these risks. That's worth something.
Compare Offer to Settlement Range
Now compare their offer to your settlement range:
| Scenario | Your Demand | True Damages | Their Offer | Assessment |
|---|---|---|---|---|
| Good offer | $8,000 | $5,000 | $4,000 | 80% of true damages — accept or counter slightly higher |
| Fair offer | $8,000 | $5,000 | $3,000 | 60% of true damages — counter with $4,500 |
| Lowball offer | $8,000 | $5,000 | $1,500 | 30% of true damages — reject or counter with $5,000 |
| Insulting offer | $8,000 | $5,000 | $500 | 10% of true damages — reject and escalate |
Step 2: Decide Whether to Accept, Counter, or Reject
Accept the Offer (If It's in Your Settlement Range)
When to accept: If their offer is 70%+ of your true damages, and you have a moderate or weak case, take it. You're unlikely to do better in court, and you avoid the risk and cost of litigation.
How to accept: Respond in writing: "I accept your settlement offer of $[amount]. Please send a settlement agreement and release for my review. Upon execution of the agreement, payment should be made within [7-14] days via [check/wire/etc.]."
Counter the Offer (Most Common)
When to counter: If their offer is 40-70% of your true damages, counter. They expect it. This is negotiation.
How much to counter: Split the difference between their offer and your demand, then add 10-20%. This leaves room for them to "win" by getting you to come down a bit.
Example:
- Your demand: $6,000
- Their offer: $2,000
- Midpoint: $4,000
- Your counter: $4,500 - $4,800
- Expected final settlement: $3,500 - $4,200
Reject the Offer and Escalate
When to reject: If their offer is less than 40% of your true damages, and you have a strong case with good evidence, reject it and escalate.
How to reject: "Your offer of $[amount] does not reflect the actual damages I incurred, which are $[true damages]. I am willing to settle for $[realistic number], but if we cannot reach an agreement within [7-14] days, I will proceed with filing a lawsuit."
Step 3: Draft Your Counter-Offer
A good counter-offer has four elements:
1. Acknowledge Their Offer (But Don't Thank Them)
Start with: "I received your settlement offer of $[amount] dated [date]." Don't say "thank you for your offer" — that sounds weak. Just acknowledge it.
2. Restate Your Position
Briefly remind them why you're owed money. This isn't the time for a long explanation — you already sent a demand letter. Just a sentence or two:
"As outlined in my demand letter, you owe me $[amount] for [brief description of claim]. This amount is supported by [invoices/contract/receipts/etc.]."
3. Make Your Counter-Offer with Justification
State your counter-offer and explain why it's reasonable:
"I am willing to settle this matter for $[counter-offer amount]. This represents [X%] of my actual damages and avoids the time and expense of litigation for both parties. It is a fair resolution given the strength of my claim and the evidence I have."
4. Set a Deadline and Consequences
Give them 7-14 days to respond, and be clear about what happens if they don't:
"Please respond by [specific date]. If I do not receive an acceptable settlement offer by that date, I will proceed with filing a lawsuit in [small claims court / superior court]."
Template Counter-Offer Letter
[Date]
[Their Name/Company]
[Address]
Re: Settlement Counter-Offer — [Brief Description of Claim]
Dear [Name],
I received your settlement offer of $[their offer] dated [date]. While I appreciate your willingness to resolve this matter, your offer does not adequately compensate me for the damages I incurred.
As outlined in my demand letter dated [date], you owe me $[original demand] for [brief description]. I have provided documentation supporting this amount, including [invoices/contracts/receipts/etc.].
To avoid the expense and uncertainty of litigation, I am willing to accept $[counter-offer amount] in full settlement of this claim. This represents a [X%] reduction from my original demand and reflects the actual damages I suffered.
This offer is valid until [date — 7 to 14 days from now]. If we cannot reach an agreement by that date, I will proceed with filing a lawsuit to recover the full amount owed plus court costs and attorney fees (if applicable under the contract/statute).
Please confirm your acceptance in writing by [deadline]. Upon execution of a settlement agreement, payment should be made within 14 days.
Sincerely,
[Your Name]
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Negotiation Strategy: Moving Them Up
Once you send your counter-offer, they'll likely respond with a second offer (higher than their first, but lower than your counter). Here's how to handle it:
Expect 2-3 Rounds of Negotiation
Most settlements happen after 2-3 rounds:
- Round 1: You demand $6,000. They offer $2,000.
- Round 2: You counter $4,500. They offer $3,000.
- Round 3: You counter $4,000. They offer $3,600. You accept.
Each round should move you closer to the middle. If they're not moving meaningfully (e.g., they go from $2,000 to $2,100), they're not negotiating in good faith. At that point, escalate.
Don't Split the Difference Too Early
A common mistake is to immediately say "let's split the difference" after the first counter-offer. That leaves money on the table. Let them make at least one more offer before you suggest splitting the difference.
Use "If-Then" Language
This helps move negotiations forward: "If you can come up to $3,800, I'll accept today and we can avoid further back-and-forth." This makes them feel like they're getting a deal (avoiding more negotiation) while pushing them closer to your number.
Know Your Walk-Away Number
Before you start negotiating, decide: what's the minimum you'll accept? If they won't go above that number, you're better off filing in court. Don't negotiate yourself below your walk-away number out of frustration or fatigue.
Red Flags in Settlement Offers
Watch out for these tactics:
Structured Payments Without Security
They offer to pay you in installments (e.g., $500/month for 10 months) but won't sign a promissory note or provide any security. If they miss a payment, you're back to square one. Require a written payment plan with consequences for default, or insist on a lump sum.
Broad Releases
Their settlement agreement says you release them from "any and all claims" — not just this specific dispute. This could prevent you from bringing future claims if you discover other problems. Insist that the release is limited to the specific claim in your demand letter.
Confidentiality Clauses
They want you to sign an NDA preventing you from discussing the settlement. This is common in larger settlements, but for small claims, it's unnecessary. If they insist on confidentiality, ask for more money in exchange (confidentiality has value).
Admission of No Liability
The settlement agreement says they're paying you "without admitting liability" or "as a gesture of goodwill." This is fine — it's standard settlement language. But make sure they're still actually paying you the agreed amount. Sometimes this language is used to slip in a lower payment than what was negotiated.
Waiver of Right to File Complaints
They want you to agree not to file complaints with government agencies (CFPB, BBB, state AG, etc.). In California, you generally cannot waive your right to file complaints with government agencies. Don't agree to this.
Frequently Asked Questions
Probably not. If they made an offer close to your true damages without negotiation, it means they expect to pay that much (or more). Counter with something slightly higher and see if they go up. Worst case, they say no and you accept their original offer. But you might get an extra 10-20% just by asking.
Get it in writing with a payment schedule, interest rate (if any), and consequences for default. Ideally, use a promissory note. If they miss a payment, the entire remaining balance becomes due immediately, and you can file a lawsuit or obtain a judgment for the unpaid balance. Don't accept verbal promises of installment payments.
No. Once you accept an offer in writing, you've formed a binding settlement agreement (assuming they accepted your acceptance). You can't go back and ask for more. This is why you should never accept immediately — take 24-48 hours to think it over and make sure the number is acceptable.
Send a demand for payment referencing the settlement agreement. If they still don't pay, you can file a lawsuit for breach of the settlement agreement. Settlements are contracts, and breaching a settlement is the same as breaching any other contract. You can sue for the settlement amount plus any additional damages caused by the breach.
For settlements over $5,000, yes. For smaller amounts, it depends on how complicated the agreement is. If it's a simple one-page release, you can probably review it yourself. If it's 5+ pages with complex legal language, indemnity clauses, confidentiality provisions, etc., spend $125-$240 for an attorney to review it. I offer document review services — contact me for a quote.
Set a deadline. After 2-3 rounds of negotiation, send a final offer: "My final settlement amount is $[X]. This offer expires on [date]. If you do not accept by that date, I will file a lawsuit." Then stop negotiating and follow through with filing if they don't accept. Don't let them drag you into endless rounds of $100 increases.
Only if your contract or a statute allows for recovery of attorney fees. If your contract has an attorney fees clause, or if you're pursuing a claim under a statute that provides for fee-shifting (like wage claims, consumer protection violations, etc.), then yes — include attorney fees in your demand. If not, you can't recover them.
Legal Disclaimer: This page provides general legal information, not legal advice. Every case is different. Reading this content does not create an attorney-client relationship. Consult with a licensed attorney about your specific situation. Sergei Tokmakov is licensed to practice law in California (Bar #279869).