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Why You SHOULD NOT Make a Low Ball Offer

I was reading Scott's blog this morning and a light bulb went off. In this Media driven economy we have experienced for about 2 years our clients all seem to take what is written as gold, even though in most cases the Media pulls the most negative piece of information to report rather than reporting any good news. Below I have put together some information for you to be sure you understand the process, to help assure you are moving towards your goals and also explaining why a Low Ball Offer is probably not a good idea.

As a buyer you want to be assured that you are getting the best possible deal when you buy a home. I agree with this 100%, NO ONE wants to feel cheated.

How can you be assured you are getting a good deal? Here are a few ideas:

Find a good Realtor, and STICK with them. A referral from a friend of family member is probably the best bet to find an agent. But personality is important as well, the two of you need to be compatible. I Would just add here that you are probably better off (in most cases) with a full time agent that considers their job as a Realtor to be a Career.
You found a good professional Realtor (that you like)... REMEMBER, STICK WITH THEM! (I know, redundant, but important)
Get qualified, and make sure that you are working in YOUR comfort zone... It is more important that you have a comfortable monthly payment than anything else. Many people will qualify for a much higher payment than they will be comfortable with, so be sure your Mortgage guy/gal has the "comfort zone" conversation with you.
NOW you can shop.... a good agent will ask you questions to ascertain your needs in a home and come up with a list of homes in the area that will fit your needs that are in your price range. Keep in mind that you may have some give and take here since it is impossible to get EVERYTHING in a home that you may want.

As you shop there will be homes that you wont even consider, and there will be homes that jump out and say "buy me". Why is that? It is something I call a 'subconscious appraisal'. As you shop you are looking for the best value, so when one home yells "buy me" it is because it is probably priced right. The homes that you would not even consider were probably priced too high.

So: If a home is priced right, why would you consider a low ball offer? The chances of your offer even being considered are slim. The house that is priced right will sell, and there are probably other potential buyers looking at it as well. If you want to make a low ball offer, do it on an over priced listing, not the one that is priced correctly.

The only way you will be sure is to do a little home work looking at listings and what is available (you do not necessarily have to physically see every listing, you need to narrow things down prior to going out on the road with an agent)

Here is a quick DON'T DO list to help be sure that you are getting a good deal:

I would advise against making an offer on the first house you see. You do not have enough information at this point for that 'subconscious appraisal'. Not to mention, you will never sleep at night if you did not do some due diligence ...
FSBO. (that's For Sale By Owner) In the 20+ years I have been in the mortgage business, The vast majority of Under Appraisals I have seen have been FSBOs. Why? Probably because they were over priced listings that expired. Possibly because there was never a market analysis done by a professional Realtor. Possibly because the buyers thought they were getting a good deal by not using a Realtor. (or any combo of the above) Just be cautious here... There is much more info on a listed property and a good agent will typically not even show you a ridiculously over priced home.

The vast majority of the time your 'gut' talks to you. As you progress through the educational phase of buying a home you will gain some knowledge without even trying and your gut will begin to talk to you. When it does, Listen to it! If you do not trust your gut, ask your agent to run a few Comps on recent sales (homes that have sold in the past few months that are similar) prior to making an offer. This will give you some extra information to be sure you are making a reasonable offer for both you and the seller. Your Seller has ALREADY seen the comps. That is how the home was priced initially. They already have a pretty good idea of what a true value of their home is!

I hope this is a useful tool for you while you are out shopping for a home!

Rob

Robert Rauf

Real Estate Mortgage Network

www.RobertRaufHomeLoans.com

Posted by Robert Rauf on 08/23/2008 10:55 AM

Comments (44)

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44 Comments on Why You SHOULD NOT Make a Low Ball Offer

AUG

2008

Look at the sales data with your buyer's agent and make an offer that is within the realm of "reasonable".

Great Point! Do your homework before submitting any offer. Some properties in our area are getting multiple offers exceeding the asking price.

This is great information and I agree. If a house is reasonably priced the low ball game isn't always the best choice. After all, too many low balls will hurt the neighborhood values even more. The goal is to be reasonable, weed out the weakest links, and help the neighborhood to start appreciating again.

Excellent post -- you're obviously a good realtor, with the best interests of your client at heart.

Buyers down here are demanding a lot. They want it cheap & updated. But often, when you ask "Have you been prequalified by a lender?" the answer is 'no'. Good post!

Good information Robert. Lowball offers especially do not work when the buyer is using FHA financing and asking the seller to pay all the closing costs.

Bill, that is something I was going to add to the post, but it got a little long.... You almost have to be a mind reader and guess a sellers bottom line and add the closing costs on top---prior to making the offer!

Robert, excellent post! I really liked the advice to research the price through comps, and most importantly, to pick a good Realtor and stick with them! Very well written!

Great insights Robert. The market will always be mirrored by the comps!

I couldn't agree with you more. However, I can't tell you how many times I have had clients that insist on doing it anyway. I have to say that I just had a clientI thought offered way to low. They ended up getting the house for $20,000 less than what I would have thought would be the lowest. This was a lesson to me to just make sure I communicate the danger of offering a low ball amount and allowing the client to make the final decision. It is their decision after all.

Paul, I agree that there are probably exceptions that prove the rule, and that there may be some desparate sellers out there. (I just did not want to encourage the low ball!) if a home has been listed for a long time it probably doesnt hurt to toss a low offer to test the waters.... but a fairly fresh lisitng... Doubt it is worth the time.

Rob, I have to say, "Well Put". So important in my market to not insult the seller. Now I know homes that have been on a really long time, and I quicker than most would throw any thing out there as an offer,but also in my market, there are 90% of the sellers that do not have a hardship on selling as most owe nothing on the homes... so I always have to look at that. I have sellers who tell me to not show them anything remotely low ballish... it is a fickle climate where I sell, you win some you lose some.

Rob, excellent post. Its interesting, as a buyer I never try to find a 'deal'. I look for what I like and when I find it I am more than happy to pay what is a fair price both to the seller and to myself. If the seller doesn't come down and I want the house, I still buy it. Why nickel and dime over a few thousand dollars if its something you think would make you happy? If someone likes a home and they see themselves living there, then just buy it. A 10k difference in price is only $60 a month in mortgage. In my opinion, too many people get caught up in the small stuff.

Good advice Robert - the prevailing sentiment in the market seems to be that you have to get huge discounts and incentives off the list price to get a good deal. This does certainly is not always true! For our remaining inventory, we are actually trending towards increases in our pricing, so the best deals to be had have largely already passed!

What a great post. Doing a CMA for our buyers is just as important as providing one for our sellers. It amazes me though, that buyers think that they are entitled to submit a low offer since we are in a "buyer's market." One of my buyers actually thought that she would pick up a home listed at $130,000 for $100,000 given our current market. The home may have been listed a little high, but no one is going to hand someone the keys to their house.

AUG

2008

Kim, I was thinking about the "insult the seller" part and was going to add that in as well, but the post was geting a little too long.

A.C.E. Glad to hear the things are turning around, GREAT News!

Dawn, it sounds like you are one of the agents to stick with! Keep up the good work

HI LISA! You are right, for a deal to truly succeed it needs to be good for both the buyer and the seller.

OCT

2008

Excellent blog and thread. Sometimes I wonder if the market would correct itself more quickly and easily if a few basic "how to" readings were viewed by buyers during their research. Many are so fixated on price, they are unable to notice inherent value. I think we have all seen a buyer walk away from from a good deal on a home they really like because they couldn't beat the seller down to an unreasonable price.

OCT

2008

Good advice about getting an experienced realtor. In my profession as a Home Stager I stress this to my clients ALL the time. Don't go with a dscount broker. Education is key and it is true that when buying a home there are so many factors to consider that you need to take your time and not act on emotions only

Phyllis Pafumi

NOV

2008

From my experience, I will say:

It would be better to get a low ball offer than nothing as a listing agent or buyer's agent. It is so simple that "no offer, no base to explore your talent of negotiation." And it is a fact that you have no way to see a result if you don't try (it is no way to try if there is no offer as, in a "short sale" situation, no banker will consider giving its consideration or approval if there is no offer.)

NOV

2008

I can see your point but in commercial especially investment side of things many times a lowball offer can bring the client back down out of the clouds.

Hello Robert, thanks for the advice. Its always good to see other people's view point. Happy Thanksgiving.

Yes point taken however buy low sell HIGH !!

NOV

2008

I agree that a low ball offer may be necessary on an over priced home, but from what I have seen, most of the low balls are just wasting paper, because they are making the offers on the homes that are priced "right"

By no means do I want one of my clients to over pay, I want the transaction to be a good one for all parties involved.