Low Balling Offers- Why Do Buyers Do it?

By
Real Estate Agent with Munson Realty Southern California Real Estate

Low Balling Offers-Why Do Buyers Do it?- It's really important for Buyers to understand how and why they make their offers. Often I find buyers make offers based upon what they've always been told buy their parents or others. For example: "Always go in with your offer at least 10%(or what ever formula they were given) under what the seller is asking".

The problem with this is that there is no real basis for this "formula" other than "low balling for the sake of Low Balling Offers". I can see if the property is overpriced to begin with, but that's just bringing the seller down to earth on their overpriced home.

I completely understand everybody wants the best deal they can get. Of course, who wants to over pay for a home?So really, the questions buyers need to ask themselves is why am I buying a home?

Ask yourself this:

Am I buying because I intend to live in my home for 5 or more years, interest rates are great and I can afford the payments?


                     or...


Am I an "investor" or "trader" who intends to "flip" the property for a quick profit?

Both of these Buyers make their offers differently because they have different motivations and are looking for different types of homes.

An Investor is typically looking for "distressed" sellers and homes that need a great deal of improvement. Investors often are contractors or can do the work themselves and save a lot of money doing the improvements the home needs with the intention of putting the home back on the market for a quick profit. These are the investors are in a position to make "low ball offers". They don't care if they get the house or not, it's all about the numbers.

on the other hand...

If you are the buyer looking to purchase because you want to live in the home for 5 or more years, your motivation is completely different. Believe it or not, although price is important, terms may be MORE important.

For example:

  • Are the payments acceptable to you?
  • Will the seller take your FHA offer?
  • Do I want the seller to pay my closing cost?
  • Is it better to buy something that is "turn key" or close to "turn key"rather than find a great deal and pull $30K out of the 401K and have no money left for an emergency?

Your Stratagy Should Be Different

  • Write Offers Based on Market Value: If there are NO offers, there may be some "wiggle"room in the price. If there are multiple offers, be prepared to go "at or above" asking price.
  • The more concessions you want (closing cost, repairs etc..) be prepared to write a stronger offer.
  • If you are going with FHA, be prepared to write stronger offers.

The bottom line here is if you are a buyer who intends on living in your home, make fair and reasonable offers that are a "win-win" for you and the seller. I've seen many people "low-ball" themselves out of homes that would have otherwise been PERFECT for them.

And remember this: If you are in fear of overpaying, then Fear Not because you are protected by the appraisal. If the appraisal comes in “under value” renegotiate or move on!

Copyright © 2010 By Stephen Munson,Munson Realty,homes for sale pasadena ca*Low Balling Offers- Why Do Buyers Do it?*

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Re-Blogged 13 times:

Re-Blogged By Re-Blogged At
  1. Bob & Leilani Souza 09/13/2010 07:56 PM
  2. Adam R. Cohn 09/13/2010 09:12 PM
  3. Kaera Mims 09/13/2010 09:38 PM
  4. Michael Johnson 09/13/2010 11:01 PM
  5. Lisa Bosques 09/13/2010 11:22 PM
  6. Julie Baldino 09/14/2010 12:01 AM
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  10. Tamara Dorris 09/14/2010 12:32 PM
  11. Steve Trieu 09/15/2010 10:45 AM
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Rainmaker
107,473
Matt Kofsky
Transaction Realty 500 Reno, Nv. - Reno, NV

I do not understand why some agents want their buyers to pay more than they have to.  If a client wants to make a $150,000 offer on a house that is listed "correctly" at $200,000, why not?  If you look in the MLS, some of those offers get accepted.   

Sep 14, 2010 09:59 AM #66
Rainmaker
388,571
Eric Kodner
Madeline Island Realty - La Pointe, WI
CRS, Madeline Island Realty, LaPointe, WI 54850 -

I have heard more than one media real estate guru gush that "people are positively giving away houses!"

The low-ball offer is a variation on the greater fool theory.  The low-baller believes that there is someone out there who is so desperate (or foolish) that they will take fifty cents on the dollar.

Television real estate advice types tell their true believer fans never to worry about offending a seller.  Just toss that low-ball offer in there and see what happens!  And overwhelmingly, what happens is a rejection and a door closed to future offers from the same party.

When the market eventually turns around, the bottom feeding instinct will probably linger for some time.

Sep 14, 2010 10:24 AM #67
Rainmaker
1,492,723
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

There are so many ways to look at a price, great post, great points!

Sep 14, 2010 10:29 AM #68
Rainmaker
72,774
Stefan West
West Realty - Murrieta, CA
Temecula-Murrieta-Menifee CA Real Estate

I think they are eveeill and out to get us!

Sep 14, 2010 10:33 AM #69
Rainer
47,810
Brian Black
Kucic Associates Realty - Indianapolis, Fishers, Carmel, IN - Fishers, IN
Indy, Fishers, Carmel IN REALTOR

Good points.  Offers are on a case by case basis.  If you want the best deal do some research and make consult your clients with what you believe is the best possible offer depending on how in love they are with the home.  Regardless I keep my clients informed and remind them that ultimately they are in control and that I am there to help strategize.  This makes them a little more comfortable and open to listen to advice.

Sep 14, 2010 10:35 AM #70
Rainmaker
656,515
Realty Works Temecula
Realty Works Temecula - Temecula, CA
Real Estate, Temecula, Murrieta, Menifee

Stephen:  I see you are from California also, and the problem is the National news paints a dreary picture of the overall real estate figures 'Nationally".   We know in California prices are up 10% according to CAR.  

 

My last three buyers have been very reluctant to believe me when I tell them that the market has changed and if they see a really low priced short sale that is listed low just to get offers then they think they can offer an even lower price! 

Sep 14, 2010 10:39 AM #71
Rainer
238,614
San Antonio Texas New Homes for Sale
www.sanantoniotexasnewhomesforsale.com - San Antonio, TX

 

 

 

In any market ......It's an offer !!!!   Buyer does not have to accept it!!!

 

  It's like dating !!

Sometimes fun sometimes not but it is an offer!!!!!

 

 Rich Lee, Jeff Dowler, Missy Caulk...have some merit

Consider it a peace making process

Sep 14, 2010 10:48 AM #72
Rainer
20,834
Sissy Thomas
Keller Williams Realty - Hendersonville, TN

Good blog .... I tell my sellers, that unfortunately, they must expect to get low balled and don't get mad -- it's business.  Seems that buyers are looking to find the bottom dollar.  Family, friends, media have set that mindset.  Oh well, this too shall pass ....

Sep 14, 2010 11:44 AM #73
Rainmaker
267,906
Bruce Swedal
Denver, CO
Denver Real Estate

I don't think it is because buyers are afraid of overpaying as suggested at the end. I think it is the nature of everyone to want something for nothing. It is up to us to give them a dose of reality and let them know there is no free ride.

Sep 14, 2010 11:50 AM #74
Rainer
28,605
Cliff Paulick
End Zone Realty - Owasso, OK

Very timely reminder. The key difference between owner-occupants and investors, as you mentioned, is, "They don't care if they get the house or not, it's all about the numbers."

Sep 14, 2010 11:52 AM #75
Rainmaker
86,736
Tamara Dorris
Davis & Davis - Carmichael, CA

GREAT POST...I"m reblogging it for my Sacramento readers!


THanks
Tamara

Sep 14, 2010 12:30 PM #76
Rainer
136,154
Brent & Deb Wells
RE/MAX Four Corners - Prosper, TX
Your Collin County Realtors

Stephen - I was afraid that your post was going to be another 'how dare you low ball me' posts. Instead I was pleasantly surprised with your clear and well thought out points on market value and using a reasoned approach to purchasing a home. I bet your clients are very lucky folks...

Sep 14, 2010 12:46 PM #77
Ambassador
1,103,892
Bryan Robertson
Catarra Real Estate, Inc - Los Altos, CA
Broker, Author, Speaker

The lowball offers I've seen with my listings priced from $700K to $3.5 million have all generally been the same sort of people, opportunists.  They have cash or mostly cash and want to buy from a desperate seller.  The hope is to get the home 10-20% below "market value".  Their ultimate combination is a naive agent with a desperate seller and an old listing (on MLS for many months).

In those cases, the lowballer may pick up a home below market as a medium-term investment to use as a home but to sell when the market bounces back in 2-5 years.  That's what I'm seeing.

Sep 14, 2010 01:47 PM #78
Rainmaker
312,851
Erick Blackwelder
Cell: 703-677-1120 - Woodbridge, VA
Text or call Erick now at 703-677-1120.

"You want to offer $X on a $Y house... $Z below the market value I showed you among the comps.  Tell me, do you want to buy a house or do you want to learn a harsh lesson?"

"We could give the owner a low ball offer, but I don't think it makes a lot of sense to enrage the owner and get your face handed to you."

"You've seen SOLD prices for similar homes in the neighborhood.  The owner has seen the same analysis of SOLD homes in the neighborhood too.  If you owned the house, and a buyer tossed you a stupid-low price, how would you react?"

 

How does a magician pull a rabbit out of his hat in his show?  He put the rabbit IN the hat BEFORE the show started.

Scripts and dialogs are what we call "Rabbits".

We have to learn, practice, and internalize as many scripts as we can to handle objections with ease.

Sep 14, 2010 02:24 PM #79
Rainmaker
1,305,779
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

I think many buyers "do it" because they can "research" properties on Zillow, etc.  Then they've done their due diligence and have read all the articles that homes are selling for 10%-20% below list price.  Of course, they don't realize they've been reading national news, not local. 

Sep 14, 2010 02:34 PM #80
Rainer
6,589
Stacy Nelson
Keller Williams Realty, Temecula - Temecula, CA

Buyers are as good as their buyers' agent - It's our job to give them all of the information possible to make the right decision.  Run the comps and see what the home is worth and then add a little gravy if they really want the house.  Their offer should reflect not only current market value but how much they really want the house. Low ball it if the comps support the claim but don't expect to get it. Compromise if it's "the one". 

Sep 14, 2010 03:42 PM #81
Ambassador
1,010,876
Harry F. D'Elia
Precision Real Estate Inc. - Phoenix, AZ
Investor , Mentor, CSSN, Radio Coach, REOs, ABR

Investors and primary home buyers have two different mind sets. Investors are driven by numbers. They always want a great deal in my experience.

Sep 14, 2010 06:02 PM #82
Rainmaker
169,728
Wendy Hayden
Photographer, Home Stager, ePRO - Richmond, VA
Chesterfield, Richmond & Powahatan

Just spent 2 hours on the phone with a client having this exact conversation.  The home is assessed at $228,000 listed at $187,000 and not a short sale but is facing foreclosure.  He wanted to offer $164,000! Finally he came around and offered $184,000 with $7000 in closing costs.  The sellers accepted and he is getting an amazing house at an unbelievable price.  If he had made his $164,000 offer they might have just let it go to foreclosure and written his offer off.

Sep 15, 2010 01:29 PM #83
Rainer
15,001
Rayna Mckay
RE/MAX Real Estate Advocates - Calgary, AB

I personally find that when I cannot reason with a buyer and talk them out of a low ball offer they end up paying more for the home in the end.

Sep 17, 2010 05:17 PM #84
Rainer
143,750
Victor Zuniga
Berkshire Hathaway Home Services California Properties - San Diego, CA

Here in San Diego low ball offers aren't working any more. Prices have increased for 13 months straight July to July 09-10. If a buyer want to low ball I tell them they can do that but not expect to get a response much less the home.

Oct 13, 2010 05:07 PM #85
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Rainer
140,501

Pasadena Short Sale Agents Pasadena Short Sales

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