When to Pitch a Lowball Offer
Answer these questions before making an offer below asking price.
Lowball. This is a term that is tossed about frequently these days as home prices in most areas continue to trend downward and markets continue to favor the buyer. If you are a serious buyer, one who is committed to purchasing a home, is the lowball offer a pitch you should be making? First, you might want to ask yourself several questions.
Do I know the playing field?
By strict definition, a lowball offer is one that is significantly below market value. In practice, an offer is considered "lowball" if it is significantly below a seller's asking price. Understanding this distinction between market value and asking price is critical to your success.
Before you make any offer, you should have complete knowledge of values in the neighborhood. What are similar homes selling for? At what prices are similar homes offered? Are area prices rising or falling? Your agent can provide you with this data. Sure, you can use a random number generator or a dart board to determine your initial offer price, and you may get lucky. But, games of chance are always a gamble, and while you are hurling arbitrary wild pitches, another buyer may be keeping it in the park -- and ultimately scoring your dream home.
Is the guy at the plate the starter?
Is the seller a person who has made their home in this property? If so, the sale is an emotional one for the home team. Negotiations should be detached, all business, but they rarely are in the venue of residential real estate. The seller's home is a source of pride and is always "special," even when it really isn't. If your offer is too low and outside, the seller may perceive that you are trash-talking his memories.
I have personally represented sellers in multiple offer situations who accepted a lower offer because they liked and respected the buyer, and I have seen many more sellers refuse to enter negotiations or even reject offers outright simply because they felt personally offended by the buyer's wind up and delivery. Being aggressive is commendable in negotiations yet being unrealistic and over-aggressive can sabotage an otherwise good game plan.
Is the guy at the plate a pinch hitter?
Many areas are seeing an increasing number of bank-controlled sales. These are either short-sales in which the seller is ultimately relying on their lender to accept less than what is owed on their loan, or foreclosures where the bank is now the owner of record. In these situations, the bank is pinch hitting, and seller emotions are no longer a consideration. Bank-controlled sales arguably provide the best opportunity for delivering the lowball offer, yet even in these circumstances, it is important to understand true market value.
Lenders typically take much longer to respond to offers, sometimes up to a month or two or more. During this time, other buyers are making their pitches, and you may often find yourself on your way back to the dugout, replaced by another buyer with a stronger offer. If you are offering on homes where the sale is bank-controlled with the expectation that you will have an offer accepted at a price below market value, you should prepare yourself for extra innings and the possibility of a strike-out or two before you hit that home run.
When it comes to writing lowball offers, there is no one right answer for every situation. You, the buyer, will perceive value at a certain price. With the help of your agent, determine that price, consider the circumstances surrounding the sale, and use this information in the manner which will best achieve your goals. Everyone wants to win; buyers want to pay the lowest price possible, certainly. This is true not only for you but for every other potential buyer looking at homes today. Sellers want to realize the highest price that you, the market, will allow. While lowball offers are becoming more frequent, even commonplace in this market, the lowballs based on value and not just asking price alone are the ones that are going to deliver the winning pitch.