MAKING "LOWBALL" OFFERS WITHOUT OFFENDING SELLERS

By
Real Estate Agent with The Alan Donald Team at Keller Williams Realty SC 47887

In the last two years, the housing market in the Charleston area has changed from being a “seller’s market” where sellers had the upper hand and buyers had to dance to their tune, to a “buyer’s market” where roles are reversed and buyers now have the advantage.

The housing market is affected both by the real numbers (supply and demand), and by the PERCEPTION of the market created by the media.

It is true that we have much higher inventory today that we had in mid-2006. But on the other hand, demand has not collapsed like it has in California, Nevada and Florida, we are still selling homes at a pace comparable to 2003, which was not a bad year!

So, why are we complaining about our housing market? I believe that the media has chosen to publish only sensational headlines (in this case bad news). Here’s an example: A colleague of mine was recently interviewed for a newspaper article about the housing market. But, because his outlook for the market was positive, he was not even mentioned in the article!

So we have a real disconnect in this market: On the one hand we have the sellers, with their inflated idea of what their home was worth in 2005 - when the media articles were all bullish and full of adrenaline and greed; and on the other hand we have the buyers, who are permanently reading negative “doom & gloom” articles and believe that they can buy any property for half the price!

In Charleston it is true that in some areas priced have dropped, but prices have kept constant in other areas. Some areas have more than 2 years’ inventory, while others only have three or four months. In my opinion, it is not wise to apply a “national average” situation to all submarkets without doing a proper analysis.

When a buyer tries to make a “lowball” offer to purchase a property, he/she runs the risk of offending the seller and breaking the negotiation (I am basing this analysis on the assumption that both the seller and the buyer want to make this happen!).

To increase the odds of ending in a successful transaction, I recommend to look at:

  1. Sellers’ Motivation: How motivated are the sellers? Are they in a financial crisis? Are they selling because of a catastrophic event (divorce, death, layoff)? Did they purchase another house and already closed on it? Or do they need to sell this one to close on the new one? Is this a short sale? Or a bank-owned (REO) property? (Note: Banks don't tend to get offended when they receive lowball offers!)
  2. History of the Listing: How long has it been on the market? Have they lowered their price? Has it been under contract before and failed? Have the Sellers changed their listing agent?
  3. Debt: How much does the seller owe the banks? (many sellers refinanced their debt on the home and spent their gains “in advance” of a sale, so they have no room to negotiate on price).
  4. Willingness: Are both parties showing patience and good will to work together to arrive to a mutually satisfactory solution? (in this market it is very common to have several counteroffers and extended negotiations before an agreement is reached)

Conclusion:

Buyers: You can get great deals, but to increase your likelihood of success you must try to learn about the sellers’ circumstances and try to justify your offer with facts and figures to avoid offending the sellers and to increase the likelihood of getting a positive reaction to your offer (or at least a counter-offer). This implies you must do your homework first!

Sellers: In a static or declining market you must pay attention to ANY offer you get. Do not get offended by an aggressive lowball offer – make them a counter-offer! Keep negotiating and communicating with the buyer. Make a few initial concessions to show your good will. Remember: “A bird in the hand is worth more than two in the bush!”

Posted by

Alan L Donald - Broker Associate, REALTOR, e-PRO
The Alan Donald Team
Keller Williams Realty
Mount Pleasant, SC
(843) 900-0155

Comments (5)

Angelia Garcia
Pure Realtors - Dallas, TX

What I find funny is that I have a buyer right now that put in a low offer on a property. When it was countered, and I told him it would be, he said he was not impressed with their counter. I'm sure he did not impress them as well. I sent this buyer other properties in his price range so he can see just how ridicules his offer was. I hope he will wake up before it is too late.

Jul 16, 2008 05:48 AM
Barbara Carter
C21 Alliance Realty Group - New Paltz, NY
Serving Your Real Estate Needs in the Hudson Valle

Alan- Great Post. Yu re so right that the seller has to consider every offer and not be offeneded. Many times we are seeing people find the home they love but are unable to meet the asking price. They want to make an offer they can afford- Thanks

Jul 16, 2008 05:50 AM
Laura Gray
RE/MAX Realty Group - Gaithersburg, MD

Allan

Great post in a real world , but todays "Buyers" are not being realistic by any stretch of the imagination.

Very few that I have seen want to pay within 5% of the List Price for fear that by the time they get to settlement the value will have dropped by 10%.

I am telling most of my bargain shopeers to wait 6-12 months , then I won't get frustrated with them. Eventually the price they want to pay for a house they want will line up and we can contract & close in 30 days and I won't have any NEW gray hairs

Jul 16, 2008 05:54 AM
William Collins
ERA Queen City Realty - Scotch Plains, NJ
Property and Asset Management

Alan,

Thanks for the post. Low Ball Offers Are a Game of Engagement. Any offer get the game started and the negotiations going. I would rather have a low offer, rather than no offer. I make my sellers accept this as their mantra, it is the only way we'll succeed.

Jul 16, 2008 05:57 AM
Evelyn Panning
Property Connections Realty Inc. - Alturas, CA

I always try to ask my buyers to put themselves in the seller's shoes when putting an offer together.  Certainly everyone wants a deal, and some will try to take advantage, but it is a good idea to make the deal a win/win.  Last week an offer came in on one of my listings that was not only a low ball offensive offer but absolutely indicated a lack of professionalism on the part of the broker presenting the offer.  Now, this listing has a lot of history.  It's been on the market almost 2 years, the owner has a reputation for being less than pleasant to deal with, and has not made many friends in this market.  The buyer's broker originally had the listing.  I now have the listing. 

I received a call at about 6:00 pm on Monday night stating that they had an offer and that the buyer's broker insisted on presenting it herself on Tuesday -- ok, I don't have a problem with that.   Well, I needed to call the sellers to find out if they would be available.  The broker was quite pushy indicating that the buyer wanted to leave on Tuesday so it had to presented right away.  Ok, I'll call the seller.  Again, push, push, push -- set a tentative meeting.  "No" I said "I need to speak with the sellers first."  I was able to reach the sellers and we were able to agree on meeting at 3:30 pm on Tuesday in the buyer's agent's office.    I was not given a copy of the offer ahead of time. 

Fast forward to 3:30 pm on Tuesday.  The offer that is placed in front of me is significantly below the asking price, the buyer was putting in about 1% cash, assuming an existing note with attractive financing terms, would allow the existing tenants to stay at the property, wanted the seller to take a piece of vacant land property that the buyer's broker placed an inflated value on, and then to help my seller out, the buyer's broker wouldn't ask for commission up front but would carry a note against the property that the seller was expected to take in exchange for their property.  My commission would be paid up front by the buyer's broker.  The sellers were going to walk away with nothing more than vacant land on which they would be making monthly payments and potentially be responsible for other escrow/closing/inspection/transfer costs. The last thing these sellers want is another property in this market. Oh, did I mention that the offer expired at 4:00 pm on Tuesday, 30 minutes into the meeting.  And, the buyer signed the offer on Tuesday - not on Monday.  And, the buyer is a licensed real estate agent in another market. Are you kidding me ?  The sellers should accept a lesser value property than what they were selling and acquire a debt against that property.  The property the seller's have on the market is actually leased out and they are in a cash flow positive position.  This broker had the nerve to say that this was a great deal and the seller's should sign it on the spot. 

My sellers asked a valid question, "What's the bottom line."  Buyer's agent response "You get debt relief and this fabulous property worth $xx,xxxx."  I indicated that the last properties that sold in that area sold for less than the value the buyer's agent placed on this property, the sold properties had improvements on them and that in today's market this property might not sell quickly.  The buyer's agent said she could sell it with no problem at all at that price-- I'm sure the look I flashed her said it all -- "do it."  I indicated to the buyer's agent that I needed to work out an Estimate of Seller's Proceeds to understand my seller's bottom line -- she indicated that there was nothing to work out -- it was straightforward. The seller's should simply accept the offer with no further analysis on the word of the buyer's agent.  I don't think so.

The buyer's agent left the room so that I could speak with the sellers.  The sellers just wanted to walk away.  I encouraged them to ask for an extension of time to respond and that I would try to work out a counter offer that would work for everyone.  They agreed.  We asked for the extension from the buyer's agent -- who said she would obtain one. 

Wednesday morning at about 7:00 am I received a call from the buyer's agent that the buyer would be in her office in a few minutes to rescind the offer.  (thought that buyer was leaving on Tuesday).  I indicated, no problem.   

This type of strong arm attempt to gain a property for essentially nothing and trying to force a seller that is perceived as desperate is despicable.  That office truly diminished itself in my eyes and that of my sellers.  I don't have any respect for the buyer either.  They are supposed to be professionals, but they behaved like scam artists.

Jul 16, 2008 06:19 AM