Low Ball Offers The Dos And The Donts

Dated: 07/09/2014

Views: 6137

For some home sellers, a home-for-sale listing ends up being a long road traveled with no sale at the end of that road. That means some buyers, smelling the desperation, may be able to cut a better Deal. Sellers who have had their homes on the market a long time may  be eager to move on, especially as the end of the peak buying season is nearing.  These sellers may be eager to make a Deal – any Deal.  Other sellers will choose to let their listings expire and try again next year. They, too, may be willing to make a Deal in order to sell their properties.  The key to making an aggressive lowball offer on a home is to start by finding properties that have languished on the market for a long time. The softer the market, the more likely the strategy will work. But buyers can get tripped up. Here are six mistakes people commonly make when making a lowball offer. 1. Understand the Market
Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is.  For instance, perhaps the property is in a location that is still a buyers’ market.   In this type of market, a buyer may still make an aggressively low offer, after considering the time the property has been on the market and neighborhood comparable sales.
But in other markets, a low offer won't get you far.  In many markets, inventories are down, interest rates are still historically low, so there is a pretty large appetite for buyers because of those factors.  Sellers in this type of market will hold closer to their asking prices.
2. Pick the Right REALTOR
Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt negotiations.  But agents should revise their recommended strategies, depending on the type of market that prevails.  It will all depend upon what the actual situation is.  Sometimes the low offer may work, and sometimes it just won’t.  It’s the agent’s job to make that determination and advise accordingly.
If it's an appealing, well-priced property that has five or six offers on it, then going in 10% or 20% under asking isn't going to get you anywhere.  But on a property that has been overlooked by the market and doesn't have multiple bidders, it often doesn't hurt to go in low.
3. Back up Your Price
There's an art to presenting an offer that's substantially less than the asking price. A low offer could start negotiations off on the wrong foot if you're not careful. The key is for your agent to explain the offer when presented.  Sellers will want to know why you're coming in so low.  Include recent (comparable sales in the area) or issues with the property that validate why your offer is so low.  However, if your criticism is too harsh, this may actually work against you.  So finesse is a factor. 
4. Know What You’re Willing to Pay
Buyers these days have a strong motivation to get the best possible price on a property, especially if they believe that home values will fall even more.  But sellers have limits, too, most often dictated by the amount of home equity they have.  Before negotiations begin, it's important for a buyer to decide what his walk-away price is.  At some price point, the Deal is no longer worth doing, no matter how great the property.
While a buyer should know how high she is willing to go, don't put limits in the first offer. You lose integrity if you say it's your "best and final" offer, but then are willing to come up with a few thousand dollars more in order to buy the property.
5. Make a Clean Easy Offer
When you make a low bid, you want other elements of the offer to be attractive to the seller. And a Deal that can close quickly will often have appeal.  Make sure there are as few contingencies as possible.  It's best if buyers don't have a home to sell in order to buy the one they're bidding on.  Also, have your financials in order from the start.  Loan qualification is more difficult these days, so it's important to have a lender preapproval letter.
6. Don’t Assume Cash Will Always Get You the Best Deal
Cash is king, but in the end, a seller often wants the most money for his home — regardless of whether the buyer needs a mortgage or not.  So don't think making an all-cash bid will automatically mean an accepted offer.  That being said, if the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage.  Banks often don't want to Deal with mortgage-related delays.
So the "low ball offer" can be a great strategy, but it has to make sense.  Good Luck out there Buyers!!!

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