With the market changing, should you prepare to lowball and get a bargain house? Putting in a low offer without the research is futile and likely to ruin your credibility as a buyer. If you are thinking about making an offer well below asking price, there are some things you need to find out first.

  1. What is the fair market value of the property. This is what other people have paid, recently, for properties like this one. We calculate that for our clients.
  2. Is the seller in a distressed position? Does the seller need to sell?

 

The real estate market in metro Boston is getting more buyer-friendly, but it is still not a buyer’s market. Not by a long shot. It surprises me that I am hearing from prospective buyers that they are anticipating putting in lowball offers and getting a great deal in this market.

There are houses that are overpriced and sellers who are ready to sell for less. However, it takes research and tact to get the lowest price possible. Just putting in a low offer because “this is what I can afford” is a recipe for failure. Putting in an unresearched “lowball offer” is the worst way. That kind of negotiation is magical thinking and it belongs in my series Bad Ideas in Real Estate.

What is a lowball offer?

As an agent, I was taught that a lowball offer is an unjustified low offer presented to a seller to pressure them to sell. Lowball offers are rude. They deserve (according to listing agents) a “screw you” counter-offer; that’s the asking price, or the asking price, plus $1. Once you throw a lowball at a seller, the seller will be inclined to sell the house to anyone who is not you.

When might a low offer work?

Time on the market: In the heat of the seller’s market in the second half of 2021 through summer 2022, average time on the market was around 15-20 days. That is a very short time until offers were accepted.  Even in the hottest times, some houses didn’t sell. Now that the market is correcting, the on-market time averages are stretching out, but not by much. Condos are taking 27 days, on average; single family houses 21 days and multifamily houses 20 days. This shows some cooling of the market, but not enough to call this anything but still a seller’s market.

Properties that are on the market for more than three weeks have something wrong with them. Next, find out what might be wrong:

Property: The most common problems with a property are these:
  • Problems that the seller disclosed but does not want to pay to fix.
  • People living in the property are not taking care of it, so it is unpleasant to show.
  • The house is run down in a general way.
  • The house has a layout issue that makes it unattractive in a general way.
  • The house has a location or lot issue that makes the house less appealing.

Your task: decide if what is wrong with the house is worth the discount you might get on it.

Seller: Common problems that are caused by the seller are these:

Seller sets the price too high and gets no offers:

  1. The price is too high because the seller needs to pay off the mortgages on the house. There are fewer distressed properties that most buyers think. The inflation of the past two years has left most owners with lots of equity. But, there are some.
  2. The seller may also price too high because he overestimates that house’s value. Maybe they got a professional comparative market analysis or not. They may be ignoring their agent, who knows it is overpriced.

If a seller is not realistic about the price, they can wait for the right buyer. In a rising market, they might as well wait. The market has not yet discouraged sellers from waiting. Yet, some of these sellers need to sell to liquidate this asset. Your task: find out why the seller is sticking to that high price.

How low is too low?

The low offer needs to be close to the value other people are getting for houses like this. A seller might forego $5,000 or $10,000. Most will reject an offer that is $50,000 below what their neighbors got for a similar property. This is not only finance, it is also ego. No one wants to be a loser in real estate.

At closing, sellers need to pay off all their mortgages and bills on the house. If the seller’s profit will be slim, they will fight harder not to owe money at closing. You will get increased resistance the closer you get to their anticipated break-even figure. If you tread too hard in that zone, the seller will just say “no.”

The very best deals (lowest prices) are negotiated by anticipating the seller’s motivation and the fair market value. Aim your offer just a few thousand dollars below that. Then, if the seller negotiates up a little, you are still getting a great deal.