It seems lately that a vast majority of people I meet out there equate getting a good deal in real estate, with writing a low ball offer. As if the beginning of a good deal always starts with a low ball offer. In some cases this can be true, but in most cases, it’s not. Let’s spend some time today talking about the real estate low-ball.
The first thing that you have to realize is that real estate has a value, just like any other product on the shelf. Most competent sellers (99.9% of sellers) want fair market value, and there are some sellers who want more. So the first thing we look at when we are buying is what the true value of the property is. When we look at that property we could discover a seller pricing his or her home at $500,000 and when we do our analysis, it comes out to $450,000 all day long. When this happens we need to write an offer according to value, not according to asking price. So we’re going to have a starting number which is less than $450,000, not less than $500,000. Those who don’t know real estate values may call this a low-ball, but it’s not. We’re simply offering to pay fair market value (and we’re shooting for less). When this happens, I usually print off my analysis and I send it to the other agent to prove that we’re not low-balling, but only asking in the region of what is fair.
Now let’s take a look at what I would call a low-ball proper. This is when we get a home that is actually, really, worth $500,000 and is also priced at $500,000, and we throw in an offer of $425,000. There are some (very rare) cases where this is an effective tactic, but generally this is not the best way to get the lowest price on a property. Let’s look at why.
First of all, imagine yourself as a seller receiving an offer like this. You know full-well that your house is worth $500,000. What would you do? How would you feel? Now, believe me, I’m not trying to protect the seller’s fragile feelings when I am representing a buyer. My objective when representing a buyer is to get the buyer the lowest price, not make sure the seller feels all warm and fuzzy. The problem is an offer like this makes sellers angry, and when they’re angry they make bad decisions. They get sticky on the price, terms, and conditions, and that’s if we’re lucky enough to have them not tell us to go pound sand. They get their back up and they want to take it out on the buyer, which is you, my client. Now, the feelings of the seller have suddenly become my business. Because where they would have been willing to give a generous discount before, now they don’t even want to sell to you. We’ve made them feel cheated. We’ve made them feel like they need to be careful of us, and now they won’t budge on a thing.
Secondly, if that same person put their house on the market for $425,000, they would have agents with offers lined up down the street and probably sell in a bidding war for more than $500,000 when all is said and done. So it would make no sense for them to even entertain our offer. There is no reason for them to essentially give us $75,000 for no good reason.
Lastly, low ball offers almost always (90% of the time) get turned down flat. Flat. As in no response. When that happens, we have to come back with our tail between our legs and actually display how much we liked the property and write a normal offer. This puts us in a weak position for negotiation and it puts the seller in the power position. Which means we likely won’t get a very big discount off the asking price.
Low-balling, in very rare cases, can work, but in most cases, it is not an effective method to get the highest discount possible on a property. Every property is different and methods for getting the right price differ in differing markets. There are plenty of ways to get a great deal, but in most cases, low balling is not one of them.
The Vanderveen Team
Maxwell South Star Realty
Phone: 403.253.5678 Fax: 403.592.6736