Oh! The dreaded lowball offer. It’s a term that we hear quite frequently in the real estate industry but how low is a lowball offer? Doesn’t necessarily mean 10% off the purchase price, 50% off? More? Or is it a matter of opinion and is relative depending on the buyer or the seller?
I want to talk about what is considered a lowball offer, how low can you go, when you should lowball an offer, and when sellers get a lowball offer what to do.
By definition, a lowball offer is one that is significantly below market value. This means it’s considerably lower than the seller’s asking price. But what exactly does that mean? It’s one of those things that when you see it you know it. Let’s say a house is priced at $400,000 and it’s only been on the market a week. If a buyer comes along and throws out a $320,000 offer, that’s a serious lowball offer. This is about 20% lower than market value, however, if similar homes in the area are all priced from $300,000-$350,000 and this one home is priced at $400,000, it’s not a lowball offer because it’s not lower than market value. Most FSBOs (for sale by owner) tend to list to their homes higher than the market average. Because of this, they may get a lowball offer and in turn, could be greatly offended by it as well.
Let’s go back to that $400,000 home. If similar homes in the area are priced at $400,000, a $390,000 offer isn’t necessarily lowballing, although some sellers may disagree. If the home has been on the market for two or three months, $390,000 might seem extremely reasonable, especially if the owner has not lowered or reduced the price thus far.
A lot of factors and variables go into determining a lowball offer and how buyers and sellers can deal with it. Time on the market, inventory, competition, if it’s a buyer’s or seller’s market, and the market value in the area. All of these factors have to be combined to determine whether or not it’s considered a lowball offer, and even then, it really is an opinion of the listing agent or the homeowner.
So how can you make a lowball offer on a home that’s accepted?
First of all, choose the right agent. This is crucial in getting the negotiations you want. An inexperienced agent or amateur agent may not have the negotiating experience to communicate with listing agents and homeowners appropriately. While being a real estate agent does require continuing education and we all need to take a test, nothing beats experience. Plus, some of us just have the gift of negotiation, which is vital for my clients to get what they want and how they want it. Related: Do you really need your own agent when buying?
Talk about the seller’s motivation. Why is the seller getting rid of the property? If they need to sell quickly because of a job relocation or finances, a lowball offer might get accepted. But again, it’s that communication between the listing agent and the buyer’s agent that really puts buyers in a better position.
Don’t be rude. Simple compassion the listening, and kindness can go miles in the real estate industry. If you are a jerk buyer this just trying to get the best deal and couldn’t care less about the homeowner, chances are the seller is not going to look very fondly on your offer.
Present evidence. If you are offering a lowball asking price make sure you present evidence to back up your number. You can say things such as “due to the days on the market, struggling real estate market, and market values in the area, I’ve chosen to offer this asking price, but would be willing to negotiate”. This simple phrase is straightforward, shows why you’re offering the price you are, and opens the dialogue for negotiation.
Have your funds ready to go. Sellers are more apt to accept a lowball offer if they know you have funds ready to go. If you are a cash buyer, have a high down payment, financing is done, it makes it much more attractive than someone that’s barely putting any money down and may have struggled to get the right loan.
When all of the factors add up for the buyer, a lowball offer is not that unusual.
But, what if you are a seller? How can you deal with a lowball offer?
First of all, control your emotions. This isn’t meant to be insulting or personal. The buyers simply want to get the very best deal they possibly can and they’re going to start as low as they think they should. You are more than welcome to make a counteroffer as you hold all the cards. Remember, the buyer wants your home, not the other way around and even though you’re trying to get it sold, you still have the product they want and that can put you in a better position overall.
The same with the buyer, having a great agent that is good at negotiation is key to getting both parties what they want and a win-win for all. Make sure you review the terms as this can matter just as much is the price. If all the terms of the offer are in your favor, you might be more likely to accept a lower offer.
Lowball offers are not the enemy but they can be a way to open the dialogue between buyers and sellers as long as both parties keep their emotions at bay and remember that this is a business transaction, nothing personal.
Have more questions on real estate transactions throughout the Lewiston New York real estate market? Give me a call. I specialize in this area and would love to help you buy or sell your next home.