6 lowball-offer errors home buyers make
CHICAGO (MarketWatch) — For some home sellers, it was a long summer without a home sale. That means this fall, some buyers — smelling the desperation — may be able to cut a better deal.
“Sellers who had their homes on the market all summer are anxious to move on, especially before the holidays hit,” said Bill Golden, a real-estate agent with ReMax in Atlanta. The closer it gets to the holidays, the more anxious unsuccessful sellers can become, he said.
Other sellers will choose to let their listings expire and try again next year. They, too, may be willing to make a deal in order to sell their properties, even if they’re no longer actively trying to sell their place, said Patrick Carlisle, chief market analyst for Paragon Real Estate Group in San Francisco.
The key to making an aggressive “lowball” offer on a home is to start by finding properties that have languished on the market for a long time. The softer the market, the more likely the strategy will work, Carlisle said.
But buyers can get tripped up. Here are six mistakes people commonly make when making a “lowball” offer.
1. Not understanding the market
Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is, Carlisle said.
For instance, it’s still a buyer’s market in the Richmond, Va., area, where Susan Stynes works as a real-estate agent for Long & Foster. Stynes said she wouldn’t hesitate to encourage a client to make an aggressive offer, after considering the time the property has been on the market and neighborhood comparables.
But in other markets a low offer won’t get you far, said Stephen G. Kliegerman, president of Halstead Property Development Marketing in New York.
“In general, sellers today in Manhattan see that inventories are down, interest rates are historically low, and there is a pretty large appetite for purchase right now because of those factors,” he said. “Sellers will hold closer to their asking prices.”
2. Not picking the right real-estate agent
Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt the negotiation process.
But sometimes agents are too reluctant to make aggressive offers, Carlisle said. They may be more focused on completing a deal and collecting their commission, rather than making the best deal. Or their negotiation skills might not be up to par.
“If it’s an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn’t going to get you anywhere,” he said. But on a property that has been overlooked by the market and doesn’t have multiple bidders, it often doesn’t hurt to go in low.
3. Not backing up your price
There’s an art to presenting an offer that’s substantially under the asking price. A low offer could start negotiations off on the wrong foot if you’re not careful, Golden said. The key is for you or your agent to explain the offer when presented.
“Sellers want to know why you’re coming in so low. Include recent [comparable sales in the area] or issues with the property that validate why your offer is so low,” he said. Don’t be too harsh with your criticism, however — that can also work against you, he adds.
4. Not knowing what you’re willing to pay
Buyers these days have a strong motivation to get the best possible price on a property, especially if they believe that home values will fall even more, said Jay Butler, professor emeritus of real estate at the W. P. Carey School of Business at Arizona State University. Their biggest worry is often that people will say they overpaid, he said.
But sellers have limits, too, most often dictated by the amount of home equity they have, Butler said.
Before negotiations begin, it’s important for a buyer to decide what his walk-away price is, Carlisle said. “At some price point, the deal is no longer worth doing, no matter how great the property.”
While a buyer should know how high she is willing to go, don’t put limits in the first offer, Kliegerman said. You lose integrity if you say it’s your “best and final” offer, but then are willing to come up with a few thousand dollars more in order to buy the property.
5. Not making a clean and easy offer
When you make a low bid, you want other elements of the offer to be attractive to the seller. And a deal that can close quickly often will have appeal.
Make sure there are as few contingencies as possible, Golden said. It’s best if buyers don’t have a home to sell in order to buy the one they’re bidding on, Stynes said.
Also, have your financials in order from the start. Loan qualification is more difficult these days, so it’s important to have a lender pre-approval letter, Carlisle said.
6. Assuming cash will always get you the best deal
Cash is king, but in the end, a seller often wants the most money for his home — regardless of if the buyer needs a mortgage or not. So don’t think making an all-cash bid will automatically mean an accepted offer.
That said, if the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage, Golden said. Banks often don’t want to deal with mortgage-related delays.