How low can you possibly go on a real-estate bid?
In the current housing market, it’s not necessarily an insult to make a lowball offer. Here is some advice to aid your negotiations.
Homebuyers are looking for a steal, home sellers are looking for an out and home builders and banks are selling homes at cut-rate prices. Combined, these conditions have triggered a wave of lowball offers to buy homes in distressed U.S. housing markets.
Conventional wisdom is that lowball offers don't work. Homebuyers are warned not to "insult" sellers, who are counseled not to counter offers from "disrespectful" buyers. Real-estate salespeople are stuck in the middle, often unwilling to engage in prolonged negotiations that might not earn commissions.
But conventional wisdom doesn't always hold true. With a severe slowdown in sales, some experts now offer new advice.
What is a lowball offer?
The term "lowball" doesn't have a formal definition in real estate, though some salespeople suggest that any offer that's less than some large percentage of either the fair market value or asking price of the property is a lowball.
Karen Monsour, a real-estate agent with Exit Realty Properties in Coral Springs, Fla., says any offer that's 25% less than the asking price falls into the lowball category. By this definition, an offer of $220,000 to buy a house priced at $300,000 would fit the bill, as would an offer of $1.5 million to purchase a house priced at $2.1 million. If an offer is that low, the sellers "aren't going to be very happy, and most of the time, they aren't going to take it," Monsour says.
Others say the term "lowball" is more subjective. Miriam Bernstein, an associate broker with Re/Max Prime Properties in Scarsdale, N.Y., suggests that just about any offer could be labeled as "lowball" if it provokes the seller to outrage or anger.
"The best definition I've ever heard is that 'lowball' is an offer that's so low the sellers can't contain themselves. They get angry," she says. "You can't come up with a percentage because not every property that comes on the market is (priced) high. It's very specific to each house."
Brokers' negotiating skills benefit buyers, sellers
Monsour says she encourages buyers to offer at least 85 percent of the asking price because anything lower than that is "an insult to the seller."
Yet her disdain of lowball offers doesn't preclude a little pre-negotiation negotiation between herself and the seller's representative in lieu of a formal written offer. The agents orally agree on a price that's close enough to open a formal negotiation, with the proviso that that price may be adjusted as the terms of deal, which Monsour calls "bargaining tools," are discussed. This approach can move a lowball offer into a price range that's acceptable to the buyer and seller. The strategy works in part because Monsour, like most real-estate agents in Florida, acts as a transaction broker who has no fiduciary duty to either the buyer or seller, but instead aims to bring the transaction to fruition.
Bernstein takes a different tack, but one that also can turn a lowball offer into an acceptable deal. Rather than discourage lowball offers, she believes buyers "should be able to put in whatever offer they want and provoke a discussion." After that, it's up to the broker to present the low offer in a manner that's friendly and nonconfrontational. Today's tough markets mean brokers need to be adept at "schmoozing" and negotiating with their colleagues, she says.
Institutions may be more open to lowball offers
If the seller is a financial institution, rather than a private homeowner, the risk of insult may be lessened, according to Ian Maker, an REO specialist with Re/Max Gold in Rancho Cordova, Calif. (REO, or real-estate owned, refers to homes that have gone through foreclosure and are owned and sold by lenders.)
"My job is to get offers on their desk. I present them with the facts, and it's their choice to decide what they want to take," he says.
Home builders and investors also may be less emotional than homeowner sellers -- but not always. Some builders "put their heart and soul" into each home they build and "become emotional" about lowball offers, Bernstein says. Other builders "can afford to wait until they get" the price they want, she adds.
Buyer may offer more if seller responds
The new thinking for sellers is similar. While a lowball offer may be unwelcome, it could be an opportunity to open a dialogue with a buyer who "ultimately may give (the sellers) what they want," Bernstein says. A seller who has "a bad reaction" to a low offer, "may lose a good buyer who could make a deal," she says.
The outcome could depend on the real-estate salesperson's willingness to negotiate, a task that not all agents greet with enthusiasm. A lot of brokers "dismiss the offer as too low" when they should say, "Yes, it's low, but let's discuss it and let's see how much more money this person has to give you," Bernstein says. Some buyers come in with a low offer, but then "come up huge amounts if they really want to buy the house," she adds.
Some sellers respond to a lowball offer with a counteroffer that cuts only a nominal amount off the asking price. Others refuse to counter at all or counter at a higher price just to make a point to the buyer. Bernstein suggests an alternative approach that aims to create good will: Thank the buyer for the offer and indicate that a counteroffer may be forthcoming if the buyer will "come up with a little more" at the outset.
Lowball offers: 'You just never know'
The bottom line on lowball offers is that each real-estate deal, like each house, is unique. That means buyers and sellers need to know the strengths and weaknesses of their own and each other's negotiating positions. If a seller's home is in prime condition, has only just come on the market and is attractively priced, a lowball offer may be rightly dismissed from a position of strength. But if that same home is still on the market with no takers six months later, a motivated seller may be more inclined to give a lowball offer a second look.
Maker offers a good tip for buyers and sellers: "Don't let (the deal) die on your end." If the seller wants to sell the property, every offer deserves a counteroffer, and if the buyer wants to purchase the property, every counteroffer merits consideration. The objective is to keep the lines of communication open until a deal is agreed upon.
By Marcie Geffner, Bankrate.com