Top 5 Lowball Offer Mistakes

Learn why some offers get rejected and others accepted

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Homebuyers who assume that listing agents are eager to see any offers that come their way may be tempted to make lowball offers, which are below-market offers that are unsupported by math or comparable sales data.

You might intentionally bid low in hopes of saving money or unknowingly do so if you don't know what is considered a lowball offer on a house. Either way, these offers make the prospect of having your bid accepted more unlikely. Identifying the most common lowball offer mistakes made by buyers will allow you to avoid them and land a home without hassles.

Making an Offer Without Calling the Listing Agent

Listing agents, who work on behalf of sellers to maximize the asking price and clinch the most favorable terms of a home for the seller, can make suggestions to the buyer for how to present an offer in a way that the seller is more likely to accept it.

If a buyer or the buyer's agent does not contact the listing agent before making an offer, they may confront one of the following situations:

  • The home might have already sold. If a buyer's agent submits a lowball offer on a house that is off the market, the buyer will come up empty-handed. Buyer's agents should always find out the current progress on a property sale before making an offer.
  • There are multiple offers on the table. In a seller's market, inventory is lower and property prices and demand are higher. This means that the seller may be fielding multiple offers. If you submit a lowball offer in these market conditions, it won't stand a chance among more competitive offers. It's crucial to assess market conditions and determine how many offers the seller has received before making one of your own.
  • There's a potential short sale. A listing agent might receive lower offers on a property pending a short sale, which is when the seller accepts a price less than what they owe on the property, typically because the property is distressed and thus commands a lower price. It's all the more important to negotiate the price with the listing agent through your agent in this scenario. If your offer is too low, it can negatively affect a seller who may already be under financial duress and may not be approved by the lender who would receive the proceeds of the short sale.

Such blind submissions are not an effective use of anyone's time and might be immediately rejected.

Submitting Low Earnest Deposits

An earnest money deposit is a deposit that a buyer makes to prove their interest in purchasing a property and indicate how much they might put down in the form of a down payment. The deposit amount varies but typically ranges from 1% to 5% of the purchase price.

A low earnest money deposit might be accepted in a buyer's market, which is when the supply of homes exceeds demand. But in general, and in a seller's market in particular, if a buyer submits an offer far below the list price along with a low earnest money deposit, it can signal to the seller that the buyer does not have the resources to fulfill the offer.

In contrast, a higher deposit can increase the odds that your offer will be accepted and may even make the seller more flexible on other terms in the offer. Consult with your agent to ensure you submit a deposit amount that aligns with market conditions, the seller's expectations, and your budget.

Making Pleas for Acceptance

If you can't secure the financing from your lender needed to pay the list price on a home, you may be tempted to send a hardship letter to a seller in order to get that price reduced. This scenario is more likely if you look for homes beyond your budget.

But listing agents recommend that sellers set an asking price based on competitive pricing principles and market conditions rather than emotions; the seller's list price is unlikely to be swayed by a buyer's personal sentiments or desire to own a home they cannot afford. Such pleas clearly communicate to the seller that you cannot pay the list price, making you appear unqualified and uninformed. Banks are even less flexible when it comes to offering refinancing or loan modifications on a home you cannot afford, especially if the home is listed as a short sale or a foreclosure.

To avoid giving sellers that impression, get preapproval from a lender to determine how much you qualify to borrow. Then, consider that amount alongside the other costs of homeownership, such as property taxes, home insurance, and utilities, and settle on a budget. With a realistic price range in mind, you can focus on properties that you can afford and increase your odds of landing a home without the need for special accommodations.

Start the loan qualification process before searching for a home. During the process, the lender will perform a preliminary review of your credit to determine how much you are preapproved to borrow to buy a home.

Sending Fake Comparable Sales

Unless a home is greatly overpriced, the listing agent has already pulled comparable sales data to support the list price before putting the home on the market. Even so, some buyers may attempt to justify a lowball offer by having their agent send the listing agent a list of cheaper sales from another area that isn't comparable to the property's location or doesn't have similar properties.

However, doing so insults that agent's intelligence and professionalism. It also shows that the buyer's agent does not know the neighborhood or its surrounding properties.

Ideally, a buyer's agent should win the listing agent's cooperation, not alienate them. Strive to make a good-faith offer on a home that aligns with comparable properties.

Making Concession Requests

Some buyers' agents add in concessions on top of an already low offer to help offset the costs of the property purchase. They might include requesting a closing cost credit or asking for the seller to make repairs for free or carry the financing on a land contract.

Some sellers are willing to make these concessions to buyers but are unlikely to do so on a lowball offer on a house because they would essentially require the seller to take on additional financial burdens for the sake of assisting the buyer.

Instead of requesting exorbitant concessions, hone in on homes that you can afford and that don't require substantial repairs to make liveable. This way, you can minimize contingencies and the associated hassles for the seller, which can make your bid stand out to a seller, particularly in a seller's market.

The Bottom Line

Buyers need to embrace the reality that lowball offers generally do not get accepted. The potential buyer is up against an agent who will advise their client not to bother considering such offers, and the odds of success are generally even slimmer when the offer is made by a buyer without an agent.

Whenever possible, work with an agent to make a competitive offer that factors in comparable sales data and market conditions as well as your own finances. If you must make a below-market offer, you're better off doing so through an agent who has the insight and professionalism needed to negotiate and push the offer through.

Article Sources

  1. National Association of Realtors. "Making an Offer: 5 Mistakes to Avoid." Accessed March 3, 2020.

  2. National Association of Realtors. "How to Make the Best Purchase Offer in a Seller’s Market." Accessed March 3, 2020.

  3. National Association of Realtors. "A Buyers' and Sellers' Guide to Multiple Offer Negotiations." Accessed March 3, 2020.

  4. National Association of Realtors. "Code of Ethics & Arbitration Manual: Part 4, Appendix IX — Presenting and Negotiating Multiple Offers." Accessed March 3, 2020.

  5. National Association of Realtors. "What the Listing Agent Should Know to Successfully Negotiate a Short Sale." Accessed March 3, 2020.

  6. Bank of America. "How to Buy a Foreclosed Home." Accessed March 3, 2020.

  7. National Association of Realtors. "Earnest Money: A Primer for New Agents." Accessed March 3, 2020.

  8. Pennsylvania Association of Realtors. "How to Convince Sellers to Set a Realistic Asking Price." Accessed March 3, 2020.

  9. Wells Fargo. "Prequalification Versus Preapproval." Accessed March 3, 2020.

  10. National Association of Realtors. "5 Tips for Buyers in a Tight Housing Market." Accessed March 3, 2020.

  11. The Office of the Federal Register of the National Archives and Records Administration. "Federal Housing Administration (FHA) Risk Management Initiatives: Revised Seller Concessions." Accessed March 3, 2020.