Lowball? Are You Sure You Want to Point that at Your Foot?. (edit/delete)
More and more buyers are using strategies that actually defeat their objectives. The number #1 culprit I fight against daily is the "Lowball Offer." They just can't seem to help themselves. If "The Lowball" is the strategy of your buyers, I think they should consider the dynamics of what tends to follow.
Don't Pull that Trigger
Buyers
Buyers in this market have been hammered by the press about market conditions. It's a buyers' market! It's a buyers' market! It's a buyers' market! Well.......it is a buyers' market. No doubt about it. Buyers are definitely in the driver's seat. Prices have fallen. A particular property appraised for $349,000 3 years ago. It's off over 10%. My experience with many of my buyers in this market is that they want to come in extremely low in their initial offer. I think they know that they aren't going to get it at that price, the possibility exists, but as a negotiation strategy they feel like if they start really low, in the end, they are more likely to get the property for less than had they started any higher. When you are talking about non-emotional things like used cars, used furniture, used whatever (anything the owner doesn't have an emotional attachment to) that strategy may work. The sellers want to get rid of it. The hassle of selling it eats on them. The seller doesn't see that particular sales price for that particular item as a personal affront. If......(this is important).........the buyer's offer isn't so low that it is perceived as insulting to the seller. I know most buyers (there's always the exception) don't usually intend to insult sellers. They understand that if they want a particular item and a seller doesn't absolutely have to sell that item right now, the seller may be offended and be less willing to be generous in the negotiations. Thus the buyer will have to pay a higher price for that item than if the seller had felt more goodwill toward that buyer. The buyers' negotiation strategy backfires. It will actually cost that buyer more instead of less to purchase that particular item. It sounds odd doesn't it? Have you ever had something for sale and someone made you an offer that was so ridiculous to you that you felt they didn't respect you? Remember how you felt then? Did you care to negotiate with that person at all after that?
Sellers
Sellers in this market have been hammered. Not as bad as in other places but they have still lost significant value. They are also beaten down every day by the press. It's a buyers' market! It's a buyers' market! It's a buyers' market! Every day for 3 years they hear that perhaps their largest investment is worth less and less each day. Now their life goals change and they want to sell one home and buy another. They have to enter the real estate market. They love their home. They've meticulously maintained it. They are proud of what they have. They have many fond family memories of life in this home. Their home is worth 80-90% of what it was and may even be slowly falling still. They spend many months having showings and dropping their price so they are ahead of the market. They have showing after showing. Everyone says how great their home is. Then they get feedback that they weren't chosen. They drop the price again. This may happen many times. Finally, the buyer comes along who recognizes the value in that property as compared to all of the others they've seen. It appears to be in fantastic condition. The owners obviously loved that home. Their agent calls the listing agent, asks a few questions and says, "It looks like we will be bringing you an offer." The sellers get excited. "We've been picked!" The sellers are on pins and needles. The excitement is palpable. Finally we will be moving on. Then....the offer comes in low. Extremely low. (Now I'm not talking about a property that is woefully overpriced but homes that everyone would agree are somewhere in the ballpark. In this market, massively overpriced homes simply don't get offers at all.)
Reaction
How does the seller react? First they are deflated. "Is this a joke?" "Are they serious?" Then, they get mad at themselves for getting excited in the first place. Then they get angry at the buyer. (This is ironic because the buyer brought them something almost all of the others did not. an offer.) "These people obviously aren't serious." "If they were serious, they wouldn't have done this." "These people are trying to steal our home." "It is useless to even counter." "We've already lost $50,000 and now this jackass thinks he can steal it? I don't think so." "How dare them. I'm not going to give it away." "Do they think we are stupid."And much, much worse. It's like their child has been insulted. It really does cut them deeply. I can't tell you how many times I've worked for hours, sometimes days, just to get my sellers to counter a lowball offer. Sometimes I haven't been successful in getting them to do it at all. They certainly counter at a price higher than they would have had the buyers been more reasonable. Sellers will freeze up. Many times to their financial detriment. The perceived insult they just suffered is more important to them than the dollars. The irony here is that the buyers didn't say any thing of the sort. They just tried to use their current power to buy a property in one of the best markets to buy in the history of this country. They took a shot. I don't blame them for trying. The unintended result here is that sellers lose all goodwill toward that buyer. They don't believe they are bargaining in good faith. If the deal eventually happens, the buyer doesn't get them to the price they could have had the seller wanted the buyer to enjoy the home as they had. In fact, many times the seller doesn't even want them to own the home at any price. The don't think they are being fair.
The Result
I have to tell you this happens over and over. The result is that the buyers don't get the house that they really wanted at a price they could have. If they do agree on a price, the transaction is horrible. Every point is a battle as the seller thinks that the buyer is still trying to take advantage. Conversely, when a seller feels goodwill toward a buyer and is happy that they will be enjoying the same home that they meticulously cared for and shared so many family memories, I have seen them be extremely generous with information about the home and neighbors, making repairs that they didn't have to make because they wanted the buyers to be happy etc. etc. and the transaction goes so well they have an ongoing relationship many years after the transaction closes. I even had one seller give my client a $10,000 tractor at the closing table. It blew me away.
Lowball Strategy
Do lowball offers have a place? Maybe. You can make lowball offers on bank properties as there is typically very little emotion from a bank. They are willing to give up a little more because they know their property needs some work and they have no emotional attachment. They don't want to own the real estate and really don't care about much more than the bottom-line. That being said, I've seen them halt negotiations because of a perception of bad faith on the part of the buyer. The initial offer was too low.
You may be able to get a lowball offer through on a desperate seller. Unfortunately desperate sellers have typically not maintained their homes very well (Remember, they are having financial troubles. That is why they are desperate.) And they will not be very forthcoming as to facts that may make you rethink your interest. They also will not be around to sue if you find that they didn't disclose a material fact that might significantly devalue the property.
Why Buyers Should Care
Why should buyers care? Because in the end, the "Lowball Strategy" is having the opposite effect of what they really want. Typically buyers start making offers on their favorite home. If a "Lowball Strategy" is involved, they see that it isn't working about the 3rd or 4th time they fail. Now they are bargaining for their 4th or 5th choice of homes. Who really wants to put their family in their 4th or 5th choice? No one.
Why REALTORS are Afraid
Buyers who don't fully understand these dynamics will often question whether their REALTOR is on their side. Don't they want me to get the best deal? Are they bargaining for the seller so that they can get a commission. "We didn't get the home because our REALTOR didn't work hard enough to "sell" our offer." Because of this and possibly their lack of really good dialogues, REALTORS are failing to assist their clients in reaching their ultimate goal. Getting the home the really want, at a price they can feel good about later. Helping a buyer understand that being "on your side" means educating you on the possible ramifications of a certain strategy or act. Are you likely to get the reult you really want?
Many of us have built our real estate careers on the idea that every transaction should be a Win-Win. Does that mean everyone gets what they want? Typically not. Everyone has to give a little. We try to keep everything as emotionless as possible and reason our way through it. When emotions get involved things get difficult. As you well know, the outcome we look for is one that everyone can feel OK about. At the end of the day they really just want to buy a house. Right?
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