Real Estate Term of the Day: Low-Ball Offer
LOW-BALL OFFER – an offer from a prospective property buyer that is much lower than the listing price. Such an offer may indicate that buyer’s belief that the property will not attract many good offers and that the asking price is unrealistic. Also, it probably means the buyer is interested in the property only if it can be purchased at a bargain price (Barron’s Dictionary of Real Estate Terms)
I believe that there are two types of low-ball offers:
- Unjustified low-ball offer – Reasons for an unjustified low-ball offer include: buyer can’t afford the list price and is trying to see if the seller will bite at an offer or buyer can afford the list price but doesn’t want to pay list price (there is no other reasoning as to why they don’t want to pay list price, they just don’t).
- Justified low-ball offer – The main reason for a justified low-ball offer is the list price is higher than what the market will bear.
Low-ball offers are more common in a buyer’s market vs a sellers market, but that is not always the case.
Below is an article I found title: “How to Make Lowball Offers” by Elizabeth Weintraub
Buyers who are lucky enough to shop for a home in a buyer’s market are in the enviable position of being more likely to get a lowball offer accepted. In seller’s markets, homes quickly sell and, since there is little inventory or competition, it is difficult to negotiate a lowball offer.
If you are shopping for a new home in a seller’s market, your best bet for finding sellers who might be receptive to a lowball offer is to check out those sellers of overpriced homes lingering with excessive DOM. But whether the market is hot, cold or neutral, lowball offers can result in big savings to a buyer if they are presented and negotiated properly.
To get started, let’s look at what NOT do when making a lowball offer:
Common Mistakes Made by Lowball Buyers
- Can’t Afford or Unqualified to Pay More. Don’t tell the seller your price is fair because that’s how much the lender has qualified you to buy. Sellers don’t care what you can or cannot afford to buy. If you can’t afford to buy the house, that’s not the seller’s problem; it’s yours.
- Paying Cash. It’s all cash to the seller in the end. Most buyers don’t realize that. If a property will appraise at selling price and the buyer’s credit is acceptable, a conventional loan transaction will close just the same as a cash deal.
The main advantage to paying cash for a home is it removes the loan contingency, the right for a buyer to walk away if a loan isn’t possible. But most loan contingencies follow the same number of days as other contingencies, so who cares? It’s not a big selling point.
- Walking Away. Some buyers get their knickers in a twist and walk away when the seller counters the offer at more than the buyer was prepared to pay. Maybe the counter was list. Maybe less. Doesn’t matter. The point is the doors have been opened for negotiations. Only the inexperienced or truly stupid walk away.
Strategies for Winning the Lowball Offer
- Find out the Seller’s Motivation. If you don’t know why the seller is selling, you can’t meet the seller’s needs. Maybe the pressing issue is financial. Maybe the seller needs to quickly move. If you know the reason behind the sale, you can structure your offer to fulfill those needs.
- Write a Clean Offer. Dot I’s and cross T’s. Don’t ask for items that oppose local custom. Shorten inspection periods, reduce or waive some contingencies and submit a lender preapproval letter. Don’t give the listing agent a reason to doubt your ability to perform. Appear strong, qualified and ready to close.
- Always Counter the Counter Offer. It goes without saying that the first counter is only an invitation for the buyer to offer a second counter offer. But sometimes buyers get discouraged. It’s a dance to see who will win. Until they turn off the lights and close up the bar, keep dancing.
- Move Attention Away From Price. There are many other considerations than price. It’s smart to change tactics and ask for other concessions such as closing cost credits, repair credits, longer escrow periods or focus on tangible goods such as furniture or appliances.
- Give a Logical Reason Why Your Lowball Offer is Fair. Don’t insult the agent by handing over a list of comparable sales. Show you have done your homework. Make notations on each sale that compares it to the subject property. Maybe the higher priced homes had remodeled kitchens. If the home you want to buy is not updated, then knock off a believable figure reflecting the remodeling work from the seller’s list price.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
When Your Lowball Offer is Rejected and Negotiations End
Don’t pack up your toys and go home. Just wait. Sellers have reasons for rejecting offers. Maybe you made an offer on a new listing, when the seller thinks that a really great offer is just around the corner. Let them sit out the market. After a month or two has gone by, resubmit your offer. Just cross off the date, but leave enough of it so the seller can see how long it’s been since you last made an offer. Then write in the new date and resubmit.