Lowball Offers are Wild Pitches in Real Estate Negotiations
This is a post that "hits" home. Sorry couldn't resist. As a listing focused agent I have the opportunity to view many different types of offers. Some written so well that they leave you rushing to respond. Some written so poorly that you feel the migraine intensifying with every sentence.
Writing a strong offer is both art and science. When you forget that you strike out.
In my area traditional home buyers desperately want to believe that prices are dropping at the speed of light. Those same buyers write low offers on well priced homes that often get ignored or they get overbid. That same type of buyer will call me and say why didn't your seller accept. Often times I have to explain we did accept an offer just not their offer.
I personally always suggest a counter offer even when the offer is so outside the realm of reality that you are certain they presented it to the wrong person. You never truly know what someone will pay for a property until you give them the opportunity to tell you.
Having said that I work with many flippers/investors who tend to lien toward the direction of writing the lowest offer possible. When I am in this situation I use their resources to make them seem like the most attractive buyer in town.
There is something to be said for a contingency free/hassle free offer even if it is lower than true value.
Let's say you are a buyer and you have found a house that meets your needs and its listing price is in your financial comfort zone. You have reviewed recent comparable sales for like properties. You have established what you think the value of the home is. You are armed with a pre-approval if you are going to seek financing or have copies of statements verifying liquid funds if you are paying cash. You are ready to make an offer and open good-faith negotiations for the house.
Okay, so stop for a moment and think of yourself as a pitcher...a baseball pitcher. Think of the seller as the batter at the plate. The catcher's mitt is like the comps - the target you are aiming for. Are you with me?
Pitchers have more than one pitch. Each pitch is used for a different strategy. Offers are the same. You can make a full-price offer with super strong terms - a fast ball pitch down the middle of the plate. If a house is priced at market value and there is strong competition from other buyers, your fast ball is the best option. And you may have to go over the ask...that is put a little extra on that pitch!
You can make an offer somewhere at the bottom of the zone of established value. That is like throwing a slider or a breaking ball low and inside...if it is interesting enough (strong terms like a high percentage down, no mortgage contingency, waiving of inspections), the seller will take a look at that pitch and may swing (a decent counter offer comes back to you) or a check swing (no or low counter offer).
Or, you can combo up some strong terms with a sensible value price...that's like throwing a knuckleball in the strike zone and let the seller make contact. Get the ball in play and see if you can reach agreeable terms and price for both sides.
Lately, I am seeing too much of the dangerous pitch choice...the wild pitch. Lowball offers are like wild pitches. Wild pitches are so far out of the zone, the catcher doesn't see it coming, can't catch it and the batter is puzzled and trying not to get injured. Same thing with lowball offers. They insult the seller, confuse the agents about your motivation and there is no basis in anything concrete to support the offer. Pitchers who pitch wild pitches get pulled. The seller reacts the same way by making no counter offer and saying "NEXT!" and some other choice words I cannot type here. Your wild pitch of an offer has set a tone for the negotiation and vicariously painted a picture of yourself as being opportunistic, or unrealistic or not serious. If the seller is able to remain calm and let you make an improvement, you are lucky. But the damage has been done. You have left the door wide open for another buyer to come in and give the seller incentive to listen more closely to them as direct response to your lowball offer.
So, when you are ready to make an offer think of yourself as a pitcher with a choice of pitches. AVOID WILD PITCHES. Study your target. Get that offer over the plate and give the batter something to look at and consider swinging at! If you can put the ball in play, you are on your way to buying a house.
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