Low Ball Offers For Real Estate | Pasadena & South Pasadena Real Estate

Get Your Low Ball Real Estate Offer Accepted

On one of my recent posts I explained why your low ball offer will be rejected. This time, we’ll flip the coin and look at how to increase your chances of having your offer accepted. If your intent is to buy a property with an FHA Loan, a 3.5% deposit and a 60 day escrow, let’s just say you have about as much of a chance of having your offer accepted as the likelihood of the no doc loan returning within our lifetime.

Add incentives to your offer

In an attempt at brevity some things were left out of last week’s article. Things to look for, if in fact you are intent on making an offer below asking price. That created a good opportunity to issue the sequel LOWBALL OFFER II. So with a little more in depth analysis, here are a few tips if you consider yourself a bottom feeder, and how to achieve your goal of buying a house below market value.

Kick em Below the Belt, Then Shake Their Hand

Mom, if you reading skip the next couple of paragraphs.

I remember when I was in the 7th and 8th grade. On a couple of occasions I was sent to the vice principals office for a couple of acts of disobedience where I received a couple of pops on my rear end. The device used looked like a giant stick you would use to stir paint. It was about 2 feet long and a half inch thick. The stinging from the blow was severe and if done today, the provider would find himself severely disciplined if not terminated and brought up on charges. That was a different time.

After the punishment was administered, the vice principal would shake my hand, as if to say we’re friends now and everything is forgiven. So how does this possibly apply to your situation and buying real estate?

The lesson here is after you make an offer well below the asking price and market value, you need to shake the seller’s hand and offer something in return. Immediately your low offer will convey that you are indeed the bad guy. Therefore how do you reverse that perception and show the seller that you intend to work with them.

Everything is Negotiable, Except Price &Terms

We used to joke that everything was negotiable with the exception of price and terms. What else is there other than price or terms? If you are predicating your entire offer on price, then you need to be flexible with terms. Here are some suggestions for increasing the odds your offer will be accepted:

Cash – the old adage that cash is king has never been more true. Cash shows intent and that you are serious. It also shows that if your offer is not accepted, you have ability to move on. Cash has finality to it that a loan application never will.
Escrow – does the seller need to close in 15 days to avoid foreclosure or 60 days in order to find a new place to live?
Release some Deposit Money- this one can be ill advised, so you will have to use your own judgment or seek counsel, but releasing some of the deposit may allow the seller the intermediate funds they need and the motivation to leave.
Remain in the House – again an iffy situation, but allowing a seller to remain in the property 30 – 45 days after escrow closes could seal the deal.

It can be hard to believe, but people do have motivations other than money. The key is finding out what their hot buttons are and how to effectively incorporate them into your offer and allow you to shake hands with the seller.

5 Reasons Your Low Ball Offer is Rejected

Buying real estate can elicit a couple of different responses. Or maybe I should restate that to read the preparatory phase of buying real estate. During the beginning stages most people are very optimistic. They have looked at a few properties, read the newspaper ads and done some online research. They have a good idea of where

Is a Low Ball Offer Serious?

the market is and what they can afford. Now it comes time to take all of the information you have gathered and put pen to paper. Then something goes terribly wrong. A real estate aneurysm occurs, creating a mental short circuit. Maybe we’ve watched too much Donald Trump, too many shows on HGTV, or seen more real estate infomercials they can be remembered. All of a sudden very smart people begin to make incredibly dumb mistakes.

Houston, We Have A Problem

Pursuant to making any offer some preliminary research needs to be done. The amount the seller purchased the home for is usually available along with the mortgage balance. A comparative market analysis should be performed to give a potential buyer an idea of what the property is worth. Also another good indicator is the number of days the property has been for sale. Now once you have gathered this information, the wildcard in the deck is the seller’s motivation.

We should probably discuss what makes a lowball offer. In my opinion, an offer that is 20% below the market value definitely qualifies. No matter what the seller’s motivation I can tell you they are not likely to sell a house 20% below the asking price. Of course there are exceptions to every rule, (homeowner in foreclosure and property is not listed for sale) but a home that is marketed with a real estate agent is highly unlikely to sell at such a steep discount.

We will use for this example a property listed at $600,000 and has been on the market for 60 days. You make the first offer at $480,000.

The Road to Failure

I have come up with several reasons this strategy will provide you with one big goose egg:

Emotions – real estate, no matter what every one likes to refer to as a business decision is fraught with emotions. Lots of emotions. Your low ball offer has just insulted the seller and reduced their anticipation below water level. For a contract to take place, a “meeting of the minds” has to exist. You have just driven the first wedge into it. You’ve announced that the property is worth less than the market price.
Credibility Factor – if an agreement is going to be reached, the other side has to want what you have or at least agree to continue talking. A low ball offer accomplishes neither.
Negotiation – by initiating the offer process you have backed yourself into a corner, giving yourself an “all or nothing”, “take it or leave it” situation. Negotiation concessions are best given in very small increments. If you are just throwing out an arbitrary offer to see what the seller will accept, be prepared to pay more. Instead of agreeing to $5000 more in price you are now agreeing to as much as 10 times that amount. Sellers usually have an idea what they will be willing to accept. An offer of $480,000 is easily dismissed by the seller, however an offer of $525,000 would make the seller give it some serious thought. As a buyer, does your counter offer go from $480K to $530K or does it go form $525K to $530. By using the second scenario, you have informed the seller your concessions will be very small.
Other Offers – your low ball offer has just given increased credibility to the offer the seller refused last week which was higher but still less than the seller expected.
A Card Laid is a Card Played – a seller will seriously question your intentions with a ridiculous offer below market price, you may not be given the opportunity of a counter offer. Now you have two options, (1) either walk away from a property you had hoped to purchase or (2) open negotiations with yourself. That’s right; the next more serious offer will be coming from you.

In the past when we have represented the seller and receive an embarrassingly low offer, we usually notify the buyer’s agent to forward over the comparables they used. We let them know that once we receive them we will be happy to review our pricing. At this point we commonly hear, “it’s just an initial offer and to please counter us back”.

GAME OVER!