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5 Reasons Your Low Ball Offer is Rejected
Buying real estate can elicit a couple of different responses. Or maybe I should restate that to read the preparatory phase of buying real estate. During the beginning stages most people are very optimistic. They have looked at a few properties, read the newspaper ads and done some online research. They have a good idea of where
Is a Low Ball Offer Serious?
Houston, We Have A Problem
Pursuant to making any offer some preliminary research needs to be done. The amount the seller purchased the home for is usually available along with the mortgage balance. A comparative market analysis should be performed to give a potential buyer an idea of what the property is worth. Also another good indicator is the number of days the property has been for sale. Now once you have gathered this information, the wildcard in the deck is the seller’s motivation.
We should probably discuss what makes a lowball offer. In my opinion, an offer that is 20% below the market value definitely qualifies. No matter what the seller’s motivation I can tell you they are not likely to sell a house 20% below the asking price. Of course there are exceptions to every rule, (homeowner in foreclosure and property is not listed for sale) but a home that is marketed with a real estate agent is highly unlikely to sell at such a steep discount.
We will use for this example a property listed at $600,000 and has been on the market for 60 days. You make the first offer at $480,000.
The Road to Failure
I have come up with several reasons this strategy will provide you with one big goose egg:
- Emotions – real estate, no matter what every one likes to refer to as a business decision is fraught with emotions. Lots of emotions. Your low ball offer has just insulted the seller and reduced their anticipation below water level. For a contract to take place, a “meeting of the minds” has to exist. You have just driven the first wedge into it. You’ve announced that the property is worth less than the market price.
- Credibility Factor – if an agreement is going to be reached, the other side has to want what you have or at least agree to continue talking. A low ball offer accomplishes neither.
- Negotiation – by initiating the offer process you have backed yourself into a corner, giving yourself an “all or nothing”, “take it or leave it” situation. Negotiation concessions are best given in very small increments. If you are just throwing out an arbitrary offer to see what the seller will accept, be prepared to pay more. Instead of agreeing to $5000 more in price you are now agreeing to as much as 10 times that amount. Sellers usually have an idea what they will be willing to accept. An offer of $480,000 is easily dismissed by the seller, however an offer of $525,000 would make the seller give it some serious thought. As a buyer, does your counter offer go from $480K to $530K or does it go form $525K to $530. By using the second scenario, you have informed the seller your concessions will be very small.
- Other Offers – your low ball offer has just given increased credibility to the offer the seller refused last week which was higher but still less than the seller expected.
- A Card Laid is a Card Played – a seller will seriously question your intentions with a ridiculous offer below market price, you may not be given the opportunity of a counter offer. Now you have two options, (1) either walk away from a property you had hoped to purchase or (2) open negotiations with yourself. That’s right; the next more serious offer will be coming from you.
In the past when we have represented the seller and receive an embarrassingly low offer, we usually notify the buyer’s agent to forward over the comparables they used. We let them know that once we receive them we will be happy to review our pricing. At this point we commonly hear, “it’s just an initial offer and to please counter us back”.
GAME OVER!
Tags: buying real estate below market value, low ball offers for real estate, selling below market price
May 15th, 2009 at 4:53 pm
There is one big assumption you are making here… that the seller’s asking price is based on comps. As time goes by, I’m seeing asking prices getting further and further away from comps. Sometimes the lowball offer will get a house down to comps. I’m sure the seller still sees it as a lowball and the emotional reaction is the same, but many buyers are just as annoyed when sellers ask too much for their house. I realize there are a lot of sellers that have no choice because of being underwater on their mortgages, so I try not to pass too much judgment on them when the bank is typically holding all the cards.
I noticed you’re representing a short sale in San Rafael Hills on Poppy Peak. Before you came along, that seller was wildly delusional about the what they could get for that house. I actually saw that house a while back and was underwhelmed to say the least. Between that and the asking of $920K, I lost interest in buying altogether. Offering 20% off asking, though likely insulting to the seller, would have been much more than the house was worth.
May 16th, 2009 at 11:45 am
Hannah B. nails it. It’s all fine and dandy to say that 20% below market value is a low ball, but how often is that asking price the same as market value? Seller is asking $500k for a hypothetical house, it’s market value is $440k, buyer offers $415k (a reasonable offer) yet the sellers go into hysterics.
Let’s be honest: realtors, taken as a group, rarely warn the seller when/if there’s a disconnect between asking price and market value. Somewhere along the line, sellers have gotten it wedged into their minds that their asking price is the same as market value, and act as if that’s a reasonable starting point for negotiations. And then they wonder, six months later, why there’s no action on their property.
May 18th, 2009 at 9:48 am
[...] Along with everyone thinking buying real estate is easy, most of the buyers I work with today want to make low-ball offers on houses. They figure that in this buyer’s market, they are in the driver’s seat. Doug Willis demonstrates 5 Reasons Your Low Ball Offer is Rejected. [...]
May 18th, 2009 at 9:51 am
You could make an almost identical argument for sellers – don’t “high-ball” the price by over 20% or it’s GAME OVER – the buyer won’t want to bother making an offer because of the same 5 arguments you outlined.
Your motivation for writing this article appears to be to convince buyers that if they are encountering a seller who has an unrealistic list price, that attempting to negotiate is simply wasting your time, and that it would be wiser to simply not submit an offer at all. Or, it may be that you’re trying to goad buyers into offering more.
As is clearly the case with the low volumes of sales in higher end Pasadena and South Pasadena, it appears the end result is that more buyers are simply not putting in offers.
What would compel you to write such an article? If most of your buyers are in fact acting this way and you feel you need to educate them to act differently, then perhaps the problem is not the buyers – it’s the fact that the market needs correction.
If your goal is to keep buyers from wasting your precious time helping sellers discover their list price is too high, then all you’re advocating is more of the same – no sales, no buyers, no work for you.
Personally, this is one of the first posts from you that makes me question whether or not you would act in my best interest as a buyer’s agent. Low balling appears to be necessary for most owners of properties on the MLS in Pasadena these days.
May 18th, 2009 at 3:41 pm
Blame it on the media time again – rife with gloom and doom. Our market still nets Sellers 97% of list price on average – and that figure includes REO properties. Low balls are still delivered, rejected or countered, and everyone ends up coming up to the list price if they want closing costs, or that 97% if they don’t.
We never had the problems that CA did – which seems to me made comps irrelevant after a month – we still suffer from high inventory and fewer buyers. I liked your post, Doug, could have paraphrased and written one like it for our market.
May 18th, 2009 at 11:03 pm
The opinions I have expressed in this article are based upon real estate transactions that either myself or my agents have been involved in. In the last 7 years that number has been close to 150 plus or minus a few. While you might not agree with what I have to say, it can be hard to argue with actual events and real scenarios that have provided me with the experience I have to share with you. I have worked with sellers who think their house should sell at a 20% premium to what the market says its worth. I have also felt obligated to tell sellers that if they want “X” for their house, I simply cannot help them, because in the end they will just be disappointed. Disappointed becasue nobody is looking at their house or disappointed that someone may make an offer well below thier expectations. I have not been shy about walking away from buyers or sellers who want to ignore the market data and deal strictly on emotion or their outstanding loan balance.
But I have to be honest with you, showing houses all day and then making an outrageous offer as I described in the post serves no purpose. We take our client representation very seriously and I will say, much more serious than other agents I have worked with. The internet and its immediate information has eliminated the chance that an offer 20% below market value will be accepted. There were 100 home sales in Pasadena in April, not one of them 20% below the asking price.
If you are unhappy with your agent and don’t think he or she is representing your best intertests, then by all means find another one. There are plenty in which to choose and quite frankly this wild goose chase that we have embarked upon is keeping me from doing something much more productive. I would rather be working with buyers or sellers who are serious about finding or selling a home.
Unfortunatley a low ball offer we recently made wasn’t taken seriously when in fact the buyer was very serious. We were just notified the sellers were going to rent the property and now the offer has been increased almost 15% in a last ditch effort to buy the house. So you see my opinion does carry a little bit of weight, because I actually live and experience what I write about. I don’t just sit back and theorize.
Lastly if you think you can represent youself better than an agent, then feel free to proceed. Nothing says that you must have agent representation in a transaction. And if you do decide to represent yourself I would love the opportunity to represent the other side.
May 20th, 2009 at 1:17 am
I’m not trying to argue with the fact that a low ball offer is a waste of time. That’s why I placed the example of that Poppy Peak house. It wasn’t worth my time to low ball. If I did, it would have been purely to anger the seller to show him/her that buyers (at least like me) don’t think his house is worth anywhere near what he/she thought.
I do think that for buyers that don’t mind taking the time, low ball offers are a good way to let sellers know in dollars that their expectations are unrealistic. And yes, I realize a lot of the low balls will also be unrealistic. Sure it’s hard for the realtor who has to submit the offers, but we’ve had such an unprecedented run up in prices that I think sellers on average need a slap in the face to wake up.
Regarding Joe Loomer’s comment of media doom and gloom, to think this is the media’s fault is laughable. This is one of the worst recessions on record and virtually everyone out there is feeling the pain, that’s just real economics. Also, one data point he forgets to mention in sales/list price ratio is a sales tactic I’ve seen used where the listing price is well below market to prompt a bidding war. These bidding wars often ratchet up the price well above asking, and just like the errant low balls that get accepted skews the numbers, these will as well.
June 11th, 2009 at 11:27 am
I agree with the author of this post, people are trying to low ball to get a deal of a life time and they are being unrealistic. Those who take offense to what he has written are clearly those who want to low ball to find in their eyes “a victorious win in the down market” .
June 14th, 2009 at 7:01 pm
Very interesting and timely posting for me! I am in the process of writing a series of postings of tips for buyers about how to get their offers accepted. Several comments above related to over-priced listings. I am sure that is an issue in your area, but it is rarely the case here in the “rust belt”!
Like Doug suggests, one of the first tips I give has to do with looking at the comps – the asking price of the home in relationship to sold prices of similar homes in the neighborhood. I also advise comparing sold prices of foreclosures and non-foreclosures. The comps will tell you whether the house is over-priced or not. My complaint is about low-ball offers on “right-priced” homes!
Now, I know you are going to laugh me right out of the water when you read these prices… But an offer of $80,000 with the seller paying up to 6% of purchase price toward cc and pp on a well priced $94,500 foreclosure home in a $150,000 neighborhood is a low-ball offer! Does it even deserve a response? (Heavens, it’s no wonder we have to wait so long for responses from banks when they are dealing with hundreds of files and many of them have offers like this one!)
Thank you for your posting, Doug. It has given me some ideas of a couple of pointers I can use in my “putting it all together” posting.
September 13th, 2009 at 6:02 pm
Amen to you! Even when I show my clients reasonable comps, they still insist on rolling the dice with a low offer and then become upset when the seller won’t give their house away. I certainly think its up to us, as agents, to educate the buyers in advance – down market doesn’t mean dumb sellers. No one is going to give their house away.
November 3rd, 2009 at 10:25 pm
I really know very little about real estate and the buying and selling of same, but I am trying to learn. I am retired and am low on the money tree so-to-speak. However my wife wanted to get a house again so we look and look and look….. Well in time she finds the house of her dreams etc. The asking price on this ’short sale’ house was $139,900. We ask our realtor if 137,000 plus closing was fair. We were told it was and so we offered that price. It has now been six mounths and nothing. Not a word one way of the other. The house next door sold for $127,000 two months ago. Making my wonder if I bid too high? I am so sick and tired of this cat and mouse game I wish I had never started this thing and I just rented and enjoyed what life God has for me.
January 1st, 2010 at 11:05 pm
Buying a house right now is plain outright stupid.
Buy the house cash–>market drop, you lose thousands in months.
Take a mortgage–>you’ll get screwed when the interest rates
rise up.(especially for 1st house buyers who take 25-35yrs
loan). And you’ll pay too much when the houses price get down
you’ll be stuck with your mortgage.
As far as i’m concerned a house is a commodity and if the
price was fair the rent would have rose 200% altogether
with house prices.