How to Make Lowball Offers on a Home
Getting Your Offer Accepted
Are you thinking about a lowball offer? Buyers who are lucky enough to shop for a home in a buyer's market are in the enviable position of being more likely than not to get a lowball offer accepted. In seller's markets, homes quickly sell and, since there is little inventory or competition, it is difficult to negotiate a lowball offer. Much depends on the type of market in which you are buying a home.
If you are shopping for a new home in a seller's market, your best bet for finding sellers who might be receptive to a lowball offer is to check out those sellers of overpriced homes lingering with excessive days on market, or DOM. But whether the market is hot, cold or neutral, lowball offers can result in big savings to a buyer if they are presented and negotiated properly.
To get started, let's look at what NOT do when making a lowball offer:
Common Mistakes Buyers Make
- Buyers Who Make a Lowball Offer Because They Can't Afford to Pay More: Don't tell the seller your price is fair because that's how much the lender has qualified you to buy. Sellers don't care what you can or cannot afford to buy. If you can't afford to buy the house, that's not the seller's problem; it's yours.
- Who Believe Paying Cash Entitles Them to a Lowball: Sorry, it's all cash to the seller in the end. Many buyers don't realize how the seller views it. If a property will appraise at selling price and the buyer's credit is acceptable, a conventional loan transaction will close just the same as a cash deal. The main advantage to paying cash for a home is it removes the loan contingency, the right of a buyer to walk away if a loan isn't possible. But most loan contingencies follow the same number of days as other contingencies, so who cares? It's not a big selling point.
- Walking Away After a Lowball Offer: Some buyers get their knickers in a twist and walk away when the seller counters the offer at more than the buyer was prepared to pay. Maybe the counter offer was at list price. Maybe less. Doesn't matter. The point is the doors have been opened for negotiations.
- Find out the Seller's Motivation: If you don't know why the seller is selling, you can't meet the seller's needs. Maybe the pressing issue is financial. Maybe the seller needs to move quickly. If you know the reason behind the sale, you can structure your offer to fulfill those needs.
- Write a Clean Offer: Dot I's and cross T's. Don't ask for items that oppose local custom. Shorten inspection periods, reduce or waive some contingencies and submit a lender pre-approval letter. Don't give the listing agent a reason to doubt your ability to perform. Appear strong, qualified and ready to close.
- Always Counter the Counter Offer: It goes without saying, that the first counter is only an invitation for the buyer to offer a second counter offer. But sometimes buyers get discouraged. It's a dance to see who will win. Until they turn off the lights and close up the bar, keep dancing.
- Divert Attention Away From Price: There are many other considerations than price. It's smart to change tactics and ask for other concessions such as closing cost credits, repair credits, longer escrow periods or focus on tangible goods such as furniture or appliances.
- Give a Logical Reason Why Your Lowball Offer is Fair: Don't insult the agent by handing over a list of comparable sales. The agent knows the comps. Show you have done your homework. Make notations on each sale that compares it to the subject property. Maybe the higher priced homes had remodeled kitchens. If the home you want to buy is not updated, then knock off a believable figure reflecting the remodeling work from the seller's list price.
When Your Offer is Rejected and Negotiations End
Don't pack up your toys and go home. Just wait. Sellers have reasons for rejecting offers. Maybe you made an offer on a new listing when the seller thinks that a great offer is just around the corner. Let them sit out the market. After a month or two has gone by, resubmit your offer. Just cross off the date, but leave enough of it so the seller can see how long it's been since you last made an offer. Then write in the new date and resubmit.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.