What Is And Is Not A Low-Ball Offer

I get a lot of potential clients reaching out to me from this blog, or from sites like Patrick.net, asking if I would be comfortable writing low-ball offers for them.

My answer is always “yes,” but I’ve found that it really helps for people to understand more about what really is and is not a lowball offer.

First, let’s define “low-ball”

Every property has a fair, market-clearing price. And, the listed price of a property might be close to that price, or nowhere close at all. To me, a low-ball offer is a price well-below fair value, where the buyer is looking to either get really lucky or even take advantage of an uninformed seller. Most of the time the strategy backfires. The seller knows the offer is well-below fair and they are rightly insulted and angry – usually not the best way to begin a large transaction.

Let’s walk through some general scenarios…

Low-balling a Regular Sale

Low-balling a traditional listing where the Sellers have equity is tough because the Sellers, unfortunately, have fragile egos to consider.

But, there are times when low-ball offers can be successful.

The are three factors to weigh: list price vs. fair value, days on market, and the Seller’s motivation. If the list price is well-above fair value, then the home is likely to be for sale for a long time. And the longer the home sits, the more likely the Sellers are to accept reality be sell for a fair price. In short, the longer the home is on the market, the more aggressive your opening offer can be without shooting yourself in the foot.

What do I mean by that? Sellers in this market are stressed, angry, and fragile. Pissing them off will not lead to your buying the house. It’s best for your agent to talk with their agent first to see if they have had (meaning rejected) other offers and what their motivation is to sell in the first place.

If they are a motivated and overpriced-but-starting-to-accept-it Seller, then low-ball away, so long as we can defend your price as being in the neighborhood of fair value.

Low-Balling a Bank-Owned Property

This is the scenario I get asked about the most, and, unfortunately, it is generally the least-successful.

Banks price their homes at values they believe they can get. Before listing the home, the paid usually three different agents and/or appraisers to give their opinion of value (people who have no incentive to inflate their estimates).

Then, the process is a formula. Within the first X days on the market, the asset manager can accept offers X percentage below the list price. Then, after X days, the list price is dropped X percentage. Repeat until the property sells.

Point is, the list price is never far above what the bank will accept. That doesn’t mean that the price is fair, it just means that the bank won’t accept much lower right now. We rarely see REOs selling for less than five percent or so than their list price. And usually if you see a sale close at ten percent or more below list price, it’s because the Buyers found some big problems – like foundation damage – during their inspections.

The best deals can usually be had on foreclosures just before the bank is about to drop the price – which they will usually do every month. Watch the total days on market. Pay attention to how long they have been for sale at the current price and if they have had any offers.

Cash will get you a very small discount – maybe a couple of percent versus an offer with financing. The way to really make money (or gain sweat-equity) is to offer cash on a home that is too distressed to qualify for financing. Maybe the foundation needs $40,000 worth of work, but you can get the property at an $80,000 discount because of it.

Low-balling a Short Sale

In general, short sales are where the buyers can get the best deals. The sellers usually don’t care what the price is, so long as it is somewhat reasonable and defensible to their lender when they review the numbers.

I’ve seen some short sales close at ten or even fifteen percent below fair value. Remember though, Sellers don’t have a reason to tie their home up with a low-ball offer that the bank is unlikely to accept. Your offer has to be reasonable or everyone is wasting their time.

Keep your eyes open for short sales that have been on the market for a long time, OR, short sales that just hit the market but need an offer asap because of a looming foreclosure date. These sellers have more incentive to work with your lower offer.

Finally, It’s Property-Specific

Before I can tell you if we are just wasting our time or risk irreparable damage with the Seller, I need to talk with the listing agent and we need to determine what fair really is, before deciding how aggressive to be.

So, yes, I’ll write your low-ball offer, but let’s make sure we are doing it in a way that will get you the house you want at the best possible price.

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Greg Fielding

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About Greg Fielding

I am a longtime real estate agent who has pretty much seen it all during the housing boom as bust. With experience in selling high-end property and low-end foreclosures, raw land, short sales, development work, apartment buildings, and working with investors, I bring a well-rounded perspective to my work.I also have started to do some paid real estate consulting. If you have questions or just need some good real estate advice, book an appointment at http://whattodorealestate.com/In addition to selling real estate, my insights have been featured in The New York Times, The Big Picture, and regularly on Patrick.net. I have also done consulting work with ForeclosureRadar.Starting my career, in 2003, I have sold homes throughout Alameda and Contra Costa counties, specializing in Danville, Alamo, Blackhawk, San Ramon, Dublin, Pleasanton, Walnut Creek, Lafayette, and Orinda. I live in Danville with my three kids.

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4 thoughts on “What Is And Is Not A Low-Ball Offer

  1. Tom Stone

    Greg, an excellent post. The only disagreement I have has to do with the pricing of REO. In areas of Sonoma County with reasonably homogeneous housing stock REO prices are slightly discounted from market price for the most part and are often decent deals. In parts of Western or rural Sonoma County REO prices seem to be all over the map. Part of this is likely due to the difficulty in pricing homes. With 50 identified microclimates in greater sebastopol and a wildly heterogeneous housing stock pricing here is a bit of an art. 8919 Bodega Hwy 95472 ( Actually on Schuh Ln) is an REO currently listed for $395k. 8907 Avila Ln 95472 was an REO that sold last year for $449k. Look on redfin and zillow for home details. Avila has a nice view, usable sunny land with a good fence and is .6 acres. The home is a lot larger, it has a large detached garage with a legal granny on top and the total pest ran $1200 ( well and septic work brought the total to $5k in needed repairs) 8919 Bodega hwy is a full acre but no view. It is not particularly sunny and the fence needs replacement. There has been substantial unpermitted work and I would bet the pest alone will be above $10k. They are less than 400 yards apart and Bodega Hwy is listed at $395k. I have absolutely no idea how this place was priced, it makes no sense to me at all. All the REO agents who have listings in greater sebastopol are from offices in Santa Rosa or Rohnert Park. They do not put the homes on the broker’s tour or hold open houses and they frequently don’t put up signs, just a poster in a window and a lockbox. making a lowball offer on these will not often work, but if you find one that is priced well below market you might get a deal. It helps when the listing agent doesn’t describe the property accurately…or the location.

  2. A. Lewis

    How can a buyer get reliable information on if a seller has received and rejected prior offers, and the dollar amounts? As you say, this would be an excellent guide when judging a reasonable offer to make.

    Forgive me for being skeptical, but the seller has no motivation to reveal this information, and no legal requirement to do so (AFAIK) – how could I trust a report from their agent about what offers they’ve received? All the motivations run the wrong way…

  3. Greg FieldingGreg Fielding Post author

    A. Lewis,

    The seller can choose not to reveal the information. But if they lie about it (or their agent does), they could certainly be sued.

    I understand your skepticism, but in reality most parties are open and transparent. Most listing agents are happy to share if the have received offers, how many, how long ago, for roughly what amount, and what went wrong. They probably won’t give that to anybody off the street who calls and asks, but they will usually share the info with another agent.

    There certainly is some crookedness within the industry, but nowhere near as much as some of the more entertaining forums and blogs might lead you to believe.

  4. Tom Stone

    Greg, you work in a larger market than I, with many more active agents. It has been my experience that agents are gossips and a bad actor’s name gets known very quickly. If I am dealing with an agent for the first time I can ask “How is so and so to deal with?” and find out with a couple of calls. The only real problems I have had are with REO specialists. And the deal can usually still be done.

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