Why do Buyers Make Lowball Offers?

By
Real Estate Broker/Owner with J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY License # 49FA1074963

I am often asked by seller clients "what are these people thinking?" when a low offer comes in. I can only speak of what I see in my marketplace (Westchester and other suburban New York counties), and it is easy to answer "they AREN'T thinking," but the real truth is far more complex. At the heart of it all is always self interest, which is the very same reason why sellers want the most they can get themselves. 

First, a few obvious motivations:

  • Speculation- Hey, you never know, the seller might just go for it. Sadly, there are some mud throwers in this group who will make 20 low offers hoping one sticks. Some are wanna-be investors, others just want to live cheaply (do you blame them?).   
  • Bad advice- The buyer's agent made too lofty a promise about what they could do for them, or their Uncle Cornelius thinks he's a wheeler dealer at Sunday dinner.
  • Media Hysteria-The TV or newspaper reports that property values are down 50% in Kerflinkle County, two time zones away. The trouble with this one is that all real estate is local, and what is happening in Las Vegas or Gary, Indiana is not happening in Yonkers or Mount Kisco. 
There are other reasons which actually do contain a great deal of thought.
  • Fear. Some buyers know too many people who have been hurt due to a job loss, declining values, or both. They are therefore far more cautious than they were 5 years ago. These people want to make a deal but do not want to be pushed. 
  • Culture.Westchester County is very diverse, and the bidder on your property may not be from Brooklyn, if you know what I mean. They could be from Sri Lanka, Taiwan, or Albania. Some people make low offers because that is just how they do business where they come from, and they may have no idea that a low number would be insulting. When my brother was in the Peace Corps in Guatemala he told me they haggled over prices with shopkeepers. Can you imagine negotiating at the mall? 
  • Mixed signals. The buyer or their agent might feel that a vacant home might have more desperate owners, or that a house with no signs of a male is a divorce. If a buyer "smells blood" they will understandably press their perceived advantage, accurate or not. 
  • Research. GIGO (garbage in, garbage out) comes to mind, and no matter the source, be it Zillow, the local paper or their broker's market analysis, some buyers get very hung up on a sale down the street or price per square foot. These people will respond to honest data. 
This is by no means comprehensive, but in all cases the response should be calm, calculated and unemotional. Offers are just a starting point. The real goal is a good ending point (an accepted offer and contracts), and those start with an offer, no matter how high or low. It might be tempting to send a low offer packing, but the best thing to do is counter offer and negotiate
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Comments (129)

Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

I'm working in a pretty strong market, and I've written an offer that the listing agent considers to be a major low ball.  I think it's right on the nose.  Oh, did I mention that his listing is over a year old?  But I think that low balls are not always low! 

Feb 15, 2010 11:46 AM
Carol Culkin
Diamond Partners Inc - Overland Park, KS
Overland Park Residential Real Estate

Well, all I can say is that while many agents are having appraisal issues, I have not had ONE problem appraisal in about 5 years.  This comes from pricing right as the listing agent and giving my buyers enough market information and comps so that each party eventually comes to a meeting of the minds based on "fair market value".  That does not say that my buyers don't try to get below FMV or that my sellers don't want more than FMV.  But, if we are all using the same comps from the same MLS then how can two parties be so far off?  Yes, I might submit low-ball offers as a buyer's agent at the request of my buyer ...but, everybody has to start somewhere before getting to the end result.

Feb 15, 2010 01:46 PM
Esko Kiuru
Bethesda, MD

Philip,

In this housing market lowball offers are kind of expected, so sellers should be primed for them. As you say, any offer is just a starting point and counter offers could be used to find where the buyer really stands.

Feb 15, 2010 02:43 PM
Anonymous
Linda Hinson

Thank heavens in our area the market seems to have turned...not saying we don't have a percentage of short sales and foreclosures but the banks don't appear to be accepting low ball offers.  In fact, many owners are leasing their homes or doing creative financing which keeps removing more property from inventory.  Homes are starting to go under contract much quicker.A builder I work with refused to reduce the price of his homes anymore.  He has tenants in both and he feels to reduce them another $20,000 is not in his best interest.  What little he has to supplement his payment can last many years before he will be $20,000 down.  Many buyers don't care about the CMAs; they want the steal they see on national news.  What are they going to do if the feds do not purchase anymore mortgages on March 31,2010.  Economists predicts rates will climb when that happens.

I agree with some of you when you realize you have a buyer who is unrealistic let someone else haul them around wishin and hopin! (Bill Gallagher's favorite words.)

Feb 15, 2010 02:59 PM
#115
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

This is a good list of the reasons buyers tend to lowball, and sometimes it takes losing a house they really like to learn.

Feb 15, 2010 03:42 PM
Tom Davis
Harrington ERA,DE Homes For Sale, $$ Save $$ Buy Today ! - Dover, DE
FREE Delaware Homes Search!, $$ Save $$ - Find Homes! Delaware Realtor

I agree with others... this is a fair summary of market conditions!

Gee did this post blow up with comments from agents...didn't it??
Sounds like a hot topic among agents thats for sure!!!

Thanks,
Tom Davis

Feb 15, 2010 03:59 PM
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Sometimes they try to get their low balls in, and then . . . BAM!  Another offer comes in, and makes their low ball look really, really bad!  I tell people if you want to low ball, we will.  But your low ball offer will make ANY other offer look GREAT!!

Feb 15, 2010 05:29 PM
Frank Castaldini
Compass - San Francisco, CA
Realtor - Homes for Sale in San Francisco

I believe everyone want a good deal.  Some people want to "steal" property.  Unless someone is reasonable it's a great waste of time.  1.  I don't encourage lowball offers.  2. I don't encourage countering lowball offers.

Feb 16, 2010 12:22 AM
Anonymous
Marlene Shelton Giles

These buyers are a dime a dozen,  cut em loose...  Just had a low offer, even with lots of closing costs, on a brand new listing,   what a waste of that agent's time.......... I fell that the buyers are getting a lot of info from the internet... especially on foreclosures, and assuming everyone is in dire need to  move..  Not so.  

Marlene Shelton Giles, RE/MAX 1st Olympic, Lynchburg, Va.

Feb 16, 2010 12:31 AM
#120
Jeffrey Smith
Author of 'Realtors Guide To Short Sale Success - Eustis, FL
Short Sale Education

WHY lowball? negotiating. One can always come up in price. You are never going to get it less than what was offered. Even when working a shortsale when i put right in the listing, "bank has already agreed upon their absolute bottom line price, please do not bring an offer that isn't within 5% of this final price." I still get offers 20-30% less. The buyers agent tells me, "oh they'll come up, they just wanted to try and see what would happen."...They are using my life philosophy, "it never hurts to ask"

Feb 16, 2010 12:34 AM
Michael Larson
Lancer Group Properties - Menomonie, WI

Just received an offer on a multi-family listing 60K under asking price...the kicker is at asking price with 20% down it has 12% cash on cash return!! after explaining that to the buyers agent he replied "i know, my buyer is just "fishing" right now just wanted to see if anyone wanted to dump a property"

Feb 16, 2010 01:52 AM
Michael Eisenberg
eXp Realty - Bellingham, WA
Bellingham Real Estate Guy

It's often very personal to a seller, but just a bisiness decidion by a buyer to offer a low price hoping someone will take it, especially investors. We need to make selleres aware of this and get a counter offer as they may be able to get a deal with some of these buyers.

Feb 16, 2010 05:15 AM
Anonymous
Jay Grossman

Normal Buyers "Test" the Market in a Down Market.  The Buyer actually has a Normal Window of Opportunity to "Buy" and burns out very quickly.  So, the Good Listing Agent knows how to take advantage of this situation.

Investors try to weed out the "Very Motivated Sellers".  So, you don't want to BUY from an Investor or Sell to them.

And, sometimes it is just an "Inside Deal" where the Listing Agentreally isn't protecting the Seller's Side and is throwing a deal off to a friend, relative, or associate.  This is why all Buyers should be assigned to a random BUYER'S AGENT to monitor the "Deal".

All Offers should be "EMBARRASSING" just wastes a lot of time; but, it creates "ACTION" out there.

Feb 16, 2010 05:35 AM
#125
Alex Cortez
Island Sotheby's International Realty - Wailea-Makena, HI
R(S)

Great (and timely) information.  I see that too many buyers are just afraid that they will lose out in a great deal if they dont try.  Meanwhile, they might lose it to a bigger and better offer nonetheless.  Thanks for the post.

Feb 16, 2010 06:49 AM
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

Phil, I think media hype definitely has a lot to do with buyers' lowball offer. By the way, you are a total feature post machine!

Feb 16, 2010 11:03 AM
Sajy Mathew
Coldwell Banker Residential Brokerage - Lancaster, PA
Making your real estate dreams become a reality!

It is a starting point and I am always happy to get an offer or give one because at least we are starting the negotiation process.  That is what we all want, getting something started.

Feb 16, 2010 01:04 PM
Eileen Liles
970-216-0530 http://WeSellDeltaCounty.com - Cedaredge, CO
Macht-Liles Real Estate Group - Cedaredge, CO

Great post, Phil.  Bottom line is if I am a Buyers Agent my job is to inform them and they make the offer, not my place to TELL them what to offer - I advise.  As with Sellers - I counsel them at the listing presentation that I am required to bring ALL offer to them, good, bad and ugly.  They need to remember that the transaction is business, not personal to the buyer.  We need to help them through the transaction in a calm and professional way, with the buyer and the buyer's agent. 

Feb 16, 2010 01:35 PM
Tamara Inzunza
Realty One Group Capital - Alexandria, VA
Close-In Alexandria and Arlington Living

I agree with one of the comments above, always prepare your sellers for anything, including low ball offers, but encourage them to to counter everything.

Feb 18, 2010 12:43 PM
Tony Morganti
RE/MAX Crossroads in Cuyahoga Falls and Stow, Ohio - Cuyahoga Falls, OH
CRS, ABR, SRES - Cuyahoga Falls, Stow

Hi Phil - I just searched out this blog to read because I have been dealing with a client who started their negotiations on a home by submitting a lowball offer.  They offended the sellers greatly and received a counteroffer that was near asking price.  Several weeks later of off and on negotiating has us very close together but not fully agreed on terms.  What I find in cases like this, and this one especially, is that when a buyer starts by submitting such a low offer on a house they really want to own, by the time you do reach agreement (if at all), by then the buyer and seller have such animosity for each other that you have to cross your fingers and toes that there are no obstacles to overcome during the escrow (repairs as a result of the inspections, appraisal issues, etc) because by now each side is totally negotiated out and about willing to scrap the transaction on principle.  Lowball offers usually work against the buyer more than they realize.

May 07, 2011 01:27 PM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

In a seller's market some sellers think they can name any price. If the list price is unreasonably high, then the "lowball" offer may actually be the true market value.

 

Nov 13, 2017 05:44 PM