As a seller, it is easy to have your feathers ruffled by an offer on opening weekend that comes in 20% below your home’s asking price. However, taking offense or admonishing the potential purchaser for his low-ball bid accomplishes little. It also moves you further from your goal.
Focus instead on dissecting the information from the low offer to get your home sold.
Approach it scientifically
Sure, some buyers are unrealistic. However, all low-ball offers are a data point for you to file away for future analysis. Even if it’s a one-sided conversation, the market is talking to you. If the deal is salvageable, you will need to get out of judgment and get into curiosity.
What is the source of the offer?
For example, who submitted the offer? Is it an out-of-state investor or a local pre-approved buyer who has toured all of the inventory in your neighborhood?
In Phoenix, it is common for investors to swarm new real estate listings under $250K within hours of MLS launch. They bring cash, a quick close and no-hassle inspection periods. The not-so-glamorous part is investor offers are commonly offering 20%-30% below market value. Many come in the form of templated Letters of Intent, which are weaker than committed written offers to purchase. In most cases, the investors have never even walked through the home. They are essentially trollling for a bite.
The investor offers are usually clean, but are not accurate reflections of fair market value because the investor needs to make money on the deal. On the other hand, offers from owner-occupants will likely be closer to market value, but may have contingencies like financing, appraisal and inspections that could prevent a quick closing and add layers of complexity to the transaction.
Why was the offer so low?
Look for underlying reasons. Ask questions of the buyer and agents and get answers.
- Is this the maximum mortgage amount that the buyer can qualify for?
- Would the buyer make a higher bid if the office area was converted back into a garage?
- Does the buyer think that the “as-is” language in the MLS description means that there are hidden defects?
Move your negotiations away from price. You might have information to offer the buyer in exchange for a higher bid.
With a little elbow grease, low bidders can sometimes turn out to be a solid option if you need to move quickly.
I sold a West Valley Phoenix rental property listing recently in 24 hours for my seller. The neighborhood was rough and the home was vandalized during the listing period. The seller was motivated to sell immediately and cash out. We had 4 offers on the first day.
The $183,000 home was in a state of serious disrepair. Three of the four offers were from investors. Bids rolled in at $130K, $161K, $178K and an owner-occupant offer at $184K ($1,000 over the asking price). The middle two bids (both investors) averaged $169,500.
In the end, the seller logically selected the highest net offer at $184K from the owner-occupant. Closing took almost two months. In retrospect, after inspection findings and mandatory FHA appraisal repairs, we could have sold to the $178K investor and closed much more quickly without expensive repairs.
Where are these low bids coming from?
In my experience, here are the most frequent merchants of low bid offers. Understanding their perspective and goals is key to getting the deal closed:
- first-time-buyers who are being heavily shepherded by caring friends and family
- buyers from cultures where low bidding is successfully employed and commonly exercised
- low-motivation buyers making a discretionary purchase, like a vacation property
- out-of-town buyers who may not understand local market conditions
What not to do
Don’t completely ignore the offer. There are no advantages to letting a buyer twist in the wind. Stalling is fine. Avoiding any communication will draw the ire of the buyer and close the door to any future negotiations.
Don’t use shame to coax them to into increasing the bid. That’s great if you are selling carnival tickets, but purchasing a home is an emotional experience for most buyers. They might just walk away and never show you their best offer.
Don’t shoot the messenger. Your Arizona real estate agent is required by law to present you in a timely manner with all written offers to purchase your home or condo.
How to deal with a low-ball offer
I have received many low offers in my real estate career. Here are a few strategies that I have employed with successful outcomes:
- Extend a counter offer. Even if it is for the full asking price. A counter offer from the seller at or near his asking price may seem redundant, but you are telling the buyer that you acknowledge his offer while simultaneously drawing a line in the sand. Low offers are sometimes just “feelers” and the buyer is willing to come up much higher after receiving a signal that the seller’s position is firm.
- Change the terms. Move focus away from price. What item is low-value to you and high-value to the buyer? If you are moving from a 2-acre hobby ranch to a condo, throw in that old tractor and some leather saddles if the buyer agrees to improve his bid. Additionally, if the buyer isn’t in a hurry for possession, negotiate lease-back terms that allow you to stay in the home after closing at a below-market rental rate. Showing flexibility in terms outside of price (like closing date, included appliances or repairs) can often loosen up a buyer’s initial low bid.
- Stall the clock. Let the buyer know that the offer has been received, but due to interest and activity, you will need to shelve his offer for a few days/weeks to see what else walks in the door. Inform that buyer that you won’t make his requested response deadline. A buyer who agrees to an extended timeframe is likely firmer in his low price. Fidgety buyers who insist on a quicker response are likely softer on price. These are the buyers who will typically improve their bids rather than lose the house.
- Just politely decline. Your agent should send at least an email or text acknowledging the offer and thanking the buyer for submitting. This preserves the line of communication and makes it much easier to return when they are ready to increase their offer (or you have reconsidered yours). In Arizona, the purchase contract will have a place for the seller to check a “rejected” box and sign to acknowledge receipt.
Origin of the term
The term “lowball” comes from railroad parlance. The ball signal was a manually-operated device that predated electric signal lanterns. It was used to signal train engineers of impending danger or traffic ahead and to control track crossings. A bright red weighted orb (about the size of a beach ball) was suspended on a rope pulley. The ball would be lowered by track crew to stop rail traffic or indicate a hazard. A raised ball signaled a clear track ahead.
Have you received a lowball offer on your home for sale? Leave me your story below in the comments.
Everything is negotiable. Whether or not the negotiation is easy is another thing. – Carrie Fisher, American actress who portrayed Princess Leia Organa of the Rebel Alliance in the Star Wars franchise