For offer on a home, just how low can a buyer go ? |
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By MARCIE GEFFNER - May 18, 2008
JUSTIN SULLIVAN / GETTY IMAGESReduced price is advertised on a 'for sale' sign in front of a home in Stockton, Calif.
The town leads the nation in foreclosures.
Home buyers are looking for a steal; home sellers are looking for an out, and builders and banks are
selling homes at cut-rate prices. Combined, these conditions have triggered a wave of lowball offers to
buy homes in distressed U.S. housing markets.
Conventional wisdom claims that lowball offers don't work. Home buyers are warned not to "insult"
sellers, who are counseled not to counter offers from ''disrespectful'' buyers. Real estate salespeople are
stuck in the middle, oftentimes unwilling to engage in prolonged negotiations that might not earn a commission.
But conventional wisdom doesn't always hold true. With a severe slowdown in sales, some experts now offer new advice.
The term ''lowball'' doesn't have a formal definition in real estate, though some salespeople suggest that any offer
that's less than some large percentage of either the fair market value or asking price of the property is a lowball.
Karen Monsour, a realty agent with Exit Realty Properties in Coral Springs, says any offer that's 25 percent
less than the asking price falls into the lowball category. By this definition, an offer of $220,000 to buy a house
priced at $300,000 would fit the bill, as would an offer of $1.5 million to purchase a house priced at $2.1 million.
If an offer is that low, the sellers ''aren't going to be very happy, and most of the time,
they aren't going to take it,'' Monsour says.
Others say the term ''lowball'' is more subjective. Miriam Bernstein, an associate broker with RE/MAX
Prime Properties in Scarsdale, N.Y., suggests that just about any offer could be labeled as "lowball"
if it provokes the seller to outrage or anger.
'The best definition I've ever heard is that "lowball" is an offer that's so low the sellers can't contain themselves.
They get angry," she says. "You can't come up with a percentage because not every property that
comes on the market is [priced] high. It's very specific to each house."
VERBAL AGREEMENT
Yet her disdain of lowball offers doesn't preclude a little pre-negotiation negotiation between herself and the seller's
representative in lieu of a formal written offer. The agents verbally agree on a price that's close enough to open a formal
negotiation with the proviso that that price may be adjusted as the terms of deal,
which Monsour calls "bargaining tools," are discussed.
This approach can move a lowball offer into a price range that's acceptable to buyer and seller.
The strategy works in part because Monsour, like most real estate agents in Florida, acts as a transaction broker who has no
fiduciary duty to either the buyer or seller, but instead aims to bring the transaction to fruition.
Bernstein takes a different tact, but one that also can turn a lowball offer into an acceptable deal.
Rather than discourage lowball offers, she believes buyers ''should be able to put in whatever offer they
want and provoke a discussion.'' After that, it's up to the broker to present the low offer in a manner that's nonconfrontational.
Today's tough markets mean brokers need to be adept at ''schmoozing'' and negotiating with their colleagues, she says.
If the seller is a financial institution, rather than a private homeowner, the risk of insult may be lessened,
according to Ian Maker, an REO specialist with RE/MAX Gold in Rancho Cordova, Calif. (REO, or real estate owned,
refers to homes that have gone through foreclosure and are owned and sold by lenders.)
''My job is to get offers on their desk. I present them with the facts, and it's their choice to
decide what they want to take,'' he says.
Homebuilders and investors also may be less emotional than homeowner sellers -- but not always.
Some builders ''put their heart and soul'' into each home they build and ''become emotional''
about lowball offers, Bernstein says. Other builders can afford to wait until they get
the price they want, she adds.
The new thinking for sellers is similar. While a lowball offer may be unwelcome, it could be an
opportunity to open a dialogue with a buyer who ''ultimately may give [the sellers] what they want,''
Bernstein suggests. A seller who has ''a bad reaction'' to a low offer, ''may lose a good buyer
who could make a deal,'' she says.
The outcome could depend on the real estate salesperson's willingness to negotiate. A lot of brokers ''
dismiss the offer as too low'' when they should say, ''Yes, it's low, but let's discuss it and let's
see how much more money this person has to give you,'' Bernstein says. Some buyers come in low,
but then ''come up huge amounts if they really want to buy the house,'' she adds.
Some sellers respond to a lowball offer with a counteroffer that cuts only a nominal amount off the asking price.
Others refuse to counter at all. Bernstein suggests an alternative approach that aims to create goodwill:
Thank the buyer for the offer and indicate that a counteroffer may be forthcoming if the buyer will
''come up with a little more'' at the outset.
UNIQUE DEALS
The bottom line on lowball offers is that each real estate deal, like each house, is unique.
That means buyers and sellers need to know the strengths and weaknesses of their own and
each other's negotiating positions.
If a seller's home is in prime condition, has only just come on the market and is attractively priced,
a lowball offer may be rightly dismissed from a position of strength. But if that same home is still on the market with
no takers six months later, a motivated seller may be more inclined to give a lowball offer a second look.
Maker offers a good tip for buyers and sellers: ''Don't let [the deal] die on your end.''
If the seller wants to sell the property, every offer deserves a counteroffer.
The objective is to keep the lines of communication open until a deal is agreed upon.
