Let’s talk about lowball offers. What constitutes a “lowball” offer, when is it appropriate or not appropriate and how can you encourage your buyer clients to stop insisting on offering a price that’s unlikely to result in an offer?
By definition, a lowball offer is an offer that is significantly below market value. This is where the problem can start — in practice, agents and their clients consider a an offer to be a lowball if it’s significantly below the asking price. Asking price and market value are not always the same thing.
Below, we’ll walk through the 4 steps of your Anti-Lowball Action Plan.
1. Revisit your client’s qualifications
Review your buyer’s qualifications prior to putting your offer together. Speak with their lender to ensure you’re fully understanding their situation, especially as interest rates and lending standards change all the time. So do buyer’s credit scores, ratios and down payment funds. Even cash buyers can have their situations change depending on where their funds are coming from.
Some buyers are “lowballing” because that’s their loan limit and/or the limit of their comfort level. Their decision to lowball is based on their situation, not their opinion of the listing price, even though they’ll tell that they believe the home is just overpriced.
Are you showing homes that are actually out of the buyer’s realistic price range? If so, it may be time for a strategy change.
2. Determine if the listing is priced correctly
Determine the actual market value of the subject property. It may not be the same as the current list price. Do your own comparative market analysis (CMA) prior to making the offer to determine value based on comps. Look at recently sold comparable and pending, as well as how the house stacks up versus the competition.
Is the listing priced right or isn’t it? Note: an offer that’s less than the list price of an over-priced home is not a lowball if it’s based on comparable sales. Attach your comparable sales with your offer to justify your offer price.
Review the pertinent facts that can affect the price
- How long has the listing been on the market?
- Have there been price changes?
- Has it been on and off the market several times over months or years?
- Has the seller recently corrected negative feedback?
- What are the average days on the market for homes like the listing?
- What is the list-to-sell price ratio for the sold and pending comparable sales?
- Has the seller recently rejected offers? If so, what was the reason?
- What else can the listing agent tell you about the seller’s situation, preferred deal terms like closing and possession dates, etc., which can help you put together an acceptable offer?
How does the property look versus the competition?
Coming in lower than list price on a home that’s been on the market for several months, with no competing offers, condition issues and slow or no showings might be appropriate.
Coming in lower than list price on a home that’s been on the market for 24 hours, has wall-to-wall showings, an open house planned this weekend and all the comparable sales sold for higher than the list price does not warrant a lowball price.
See the difference?
3. Educate your buyer clients on market and listing facts
Meet your buyer in person and educate them on the facts based on your previous two steps. Decide together after that discussion what price should be offered in order for the result to be an accepted (or at least countered) offer. Keep in mind, a lowball may still be warranted in some cases.
The below example assumes the house was correctly priced, didn’t have a bunch of condition issues or had been sitting on the market.
Script: “Mr./Mrs. Buyer, I appreciate the fact that you are considering making an offer that is well below the list price. Of course, everyone wants to get the best price possible, but let’s first review the facts about this listing so we can decide an an offer that makes sense and will actually achieve the goal of getting you this home.”
Go over your market analysis, including the list-to-sell price ratio of the most recently sold and pending homes. Then you can use the following script, modified based on each property you’re offering on:
Script: “Mr./Mrs. Buyer, the average list-to-sell price ratio for homes which have sold and are most similar to the one we’re offering on is 99%. That means that sellers in this neighborhood are only negotiating down by 1% currently (assuming it’s priced right, and based on the comps they are priced well).
Script: “Let’s take a look here… your proposed offer is about 88% of list price, so that’s 11% lower than they’re looking for. With other offers expected, it’s unlikely that they’ll even consider yours based on what they (and their listing agent) know the house will sell for. If you actually want this home to be yours, you’ll need to come in much closer to the list price to get it. Do you still want to come in that low based on these facts, or should we reconsider? Our mission is to actually get you this house, right?”
4. Prepare the offer
Qualified and motivated buyers who actually want to buy the home will typically see the light after your presentation and ask you to prepare an offer that should be acceptable to the seller, or at least one that would be countered versus rejected.
If you have determined that the listing warrants a lower-than-list price offer, record a short, professional and factual video for the listing agent so they can explain to their seller client why you’re coming in lower than list. If they can use the same facts you did to determine a logical sale price, their seller may actually understand and be very reasonable. At the very least, they’ll be more likely to counter versus reject your offer. Send your explanation video along with your offer to the listing agent.
If after your presentation your buyer still wants to lowball and it’s not based on any logical reason, you may have a non-serious client. You (and they) will have to decide how many times you want to prepare losing offers before you nicely break up with them. You may also be more successful with this type of client if you change your strategy to focusing exclusively on homes which have been on the market longer, with no other offers to compete with.
Note to listing agents: When you receive offers that seem like lowball offers, go through the same steps that we’ve prescribed here for buyers’ agents, so you can determine if it’s actually a lowball or if it’s reasonable based on the current market conditions and profile of the listing, especially if you have no other offers, slow or no showings or negative feedback that hasn’t been remedied. Additionally, make sure the buyer hasn’t offered a lower price because that’s all they’re actually qualified for!
Tim and Julie Harris host a podcast for real estate professionals. Tim and Julie have been real estate coaches for more than two decades, coaching the top agents in the country through different types of markets.
