When is a Lowball Offer a Good Idea?
By on in Moving
Let’s face it: buying a home is like a game of chess, and each person is trying to outwit the other. You want to purchase the house for the least amount of money and the seller is trying to get as much as possible out of the deal. So when should you use a lowball offer as a part of your strategy?
Freshome asked several top realtors to weigh in on this topic.
Apparently, sellers are in a more generous mood during the most wonderful time of the year, according to Shelton Wilder, a Beverly Hills, CA-based realtor at the Douglas Elliman Real Estate Company. In fact, she remembers one buyer who put in a lowball offer on Christmas Eve.
“The holidays and the fourth quarter are slower, but sellers tend to panic every year at this time,” Wilder says. “If a house has been sitting a while without offers, then it can create the perfect scenario for a buyer to pick up a property for a steal.” Also, she says that some sellers want to close the deal before the end of the year for tax purposes.
The home has been on the market for a while
If a home has been sitting too long, this can also be a good time to lowball an offer. A home will generally sell for asking price or over in the first seven days, according to Tom Matthews, part of the Tom and Joanne Team at Gibson Sotheby’s International Realty. “After 8 to 45 days on the market, a home is likely to sell for asking price.” But after this time frame, Matthews says a home will usually drop in price and this is an appropriate time for a lowball offer.
And Jenny Okhovat, a realtor with Compass in Los Angeles, CA, agrees. She says that a lowball offer is only a good idea when the home has been sitting on the market for quite some time, or if your realtor recommends it. “Your realtor should work with the opposing realtor — unless the home is FSBO — to come to a conclusion about whether or not the lowball offer will be considered by the seller,” she explains. “A lowball offer is only a good idea when there are no other offers on the table. Otherwise, it may be used against you to create a ‘multiple offer’ dynamic.”
The home needs repairs
If the home needs some work, the seller should be expected to lower the price accordingly. And the more work the home will need, the lower your offer can be. “If the property is in a state of significant disrepair and the seller doesn’t have the resources to fix the property or bring it up to market standard, the sellers are going to receive offers that are much lower than just the cost of fixing up the property,” explains Brett Jennings, Founder of the Real Estate Experts in the California Bay Area. “Buyers are going to factor in the price of their profit margin (if they’re an investor) or the time and hassle of renovating (if they’re a homeowner).”
There are failed attempts to sell
Sometimes a house is on the market for a while because a sale didn’t go through. “It can be helpful to look for properties that accepted an offer and went into contract, but then the transaction fell apart and they came back to market,” Jennings says. “These sellers are often more motivated to accept lower offers.” If there has already been one failed attempt at a sale, he says they may be more open to negotiating the second time around. In this case, a lowball offer could be a good option.
The home has a bad history
It’s not only people who can have a bad reputation. Not many people will want to live in a home that’s gained notoriety for an unpleasant reason. “A home could be unmarketable if it was the site of a highly public murder,” says Phil Georgiades, Realtor, Mortgage Expert and Chairman of FedHome Loan Centers. Also, if there was a bad fire or the owner chose not to rebuild after a hurricane, some buyers could be apprehensive. This could help your lowball offer get accepted.
The home is overpriced or it’s an extreme buyers’ market
If the property is desirable or priced fairly, Georgiades doesn’t think a lowball offer is usually a good idea. “However, if the property is overpriced, a lowball offer may make sense,” he says. And Georgiades adds that sometimes sellers tend to overprice their homes. “If your agent appraises the home you are looking at and it is overpriced, it may make sense to write a lowball offer for fair market value,” he explains.
“An extreme buyers’ market is actually pretty rare,” Georgiades says. “In the past 20 years, there has almost always been a housing shortage.” However, this may vary depending on your region of the country — or even by city or part of town. If you are trying to purchase a home in an extreme buyers’ market, a lowball offer will go over better.
You know the seller’s motivation
If you can learn a little more about the seller, you may be able to determine the reason why the home is on the market. Then, you can decide if a lowball offer could be appropriate. “I cannot stress enough the importance of dialogue with the seller or seller’s agent to understand the seller’s needs and motivation,” advises Joanne Taranto of the Tom and Joanne Team at Gibson Sotheby’s International Realty.
“Do they need to move to a new state for a job or to care for an elderly relative? Did they inherit the property but don’t have any interest in holding onto it? If you can identify what is important to the seller, you may be able to negotiate a better deal,” she says.
Jennings agrees. “The prospect of accepting a lowball offer is one that happens either because the seller is under some sort of stress and has a pending event like a foreclosure,” he says. “Or they don’t have the time or resources to bring a property to market.”
The risks of a lowball offer
All that said, one of our realtors is against a lowball offer under any circumstances. “Talk about starting off on the wrong foot,” laments Vivian Cobb of Colorado Springs, CO-based Cobb Real Estate. “A lowball offer is usually contrary to the spirit of trying to get the deal done.”
Cobb explains that getting to the finish line of a real estate transaction is a team sport. “If the other team is starting out by being insulting, it doesn’t usually go well from there,” she warns. However, Cobb also says that this practice may vary by market. “In California, for example, lowballing is the norm. But in Colorado, it’s considered bad form.”
And while Okhovat believes there is a time for lowball offers, she also thinks buyers should be cautious. “You don’t want to lowball a property that you really want,” she says. “[A lowball offer] can only be for a property you’re willing to lose out on if your offer is not accepted. “