What is ZOPA (Zone of Possible Agreement)?

The "Zone of Possible Agreement" is the area in which a deal can take place. Each party’s reservation price determines one end of the ZOPA. The ZOPA itself exists (if at all) in the overlap between these high and low limits, that is, between the parties’ reservation prices.

Here is an illustration. A buyer has set a reservation price of $275,000 for the purchase of a commercial warehouse (and would like to pay as little as possible). The seller has set a reservation price of $250,000 (and would like to obtain as much as possible). The ZOPA, therefore, is the range between $250,000 and $275,000.

If the numbers were reversed, and the buyer had set a reservation price of $250,000 while the seller had set a reservation price of $275,000, there would be no ZOPA—no overlap in the ranges in which they would agree. No agreement would be possible, no matter how skilled the negotiators, unless there were other elements of value to be considered—or one or both sides’ reservation prices changed.