Tips for Making or Accepting Lowball Offers

By June Fletcher
Question: I am a prospective first-time homeowner and plan to purchase in the next year. I have noticed an adjustment in asking prices compared to a year ago, but it isn't very significant. Many of the homes have been listed for many months. I'm hoping you could provide me with a general range of what is considered a low offer in relation to the current market conditions. I have heard 15% below asking price is what some people are offering, but don't really know.
-- Barry Fladeboe, Minneapolis, Minn.
Barry: How low can you go?
As the housing bubble deflates -- slowly in some markets, rapidly in others -- both buyers and sellers are asking this important question. Everyone realizes that prices are falling, but no one knows where the floor is. Buyers like you are hesitant because they don't want to pay too much and get stuck with a mortgage that's higher than the value of their house a few months down the road. And sellers are desperate to hold on to equity.
So while many professional investors won't bid on a property unless they can get a 15% to 20% discount off the asking price, that "lowball" rule of thumb is too general to be of much use in today's transitional market.
Here are tips to keep in mind if you want to make -- or happen to receive -- a lowball offer.
Sellers:
Although we all have emotional attachments to our homes, try not to be insulted by a low offer. Think of it instead as an opening move by someone who likes your property.
First, do some research. Try to find out why the buyer is interested in your home and why the offer is low. Some of their assumptions may be wrong. For instance, they may be turned off by dated cabinets and assume that the whole kitchen needs updating, or they may have overlooked the fact that the appliances were all replaced a year ago.
If the offer is far below what you can accept, make a prompt counteroffer anyway. Don't counter with your lowest acceptable price. Buyers who make lowball offers often expect several rounds of negotiation.
Ask the buyers or their agent if there are other aspects of the deal that matter besides the selling price, like owner financing, help with closing costs or a quick move-in date.
See if other incentives can cement the deal without having to lower your asking price. The obvious choices are furnishings or a car you no longer need. But try more creative lures, too, like a year's worth of maid or lawn service, or a paid consultation with an interior designer.
Try making low-budget fixes to the home. Sometimes, these are enough to impress buyers and get them to offer more for a property.
If you're only getting lowball offers and your price is higher than comparable homes, it's time to face facts: Your property is overpriced. Take it off the market and let it "rest" a while. Fix all the defects that potential buyers have complained about. When you re-list it, make sure it's the most sparkling home in its class, as well as one of the lowest priced. In a buyers' market, these are the only ones with a prayer of selling near their asking price.
Buyers:
Check comparables to see where the house falls in relation to prices for other similar homes. If the property is on the high end, you'll likely have more negotiating room.
See how long the house has been on the market, and how many times the price has been reduced. If it's been listed for months or years and has seen several price cuts, owners may have discounted it as low as they can go.
Check public records (now available online at places like RealEstateABC.com and Trulia.com) to see how much the owner paid for the property and when. Owners who've held the property for years have built up the most equity and have the most wiggle room on price. On the other hand, those who bought within the past two years may actually owe more than the house is worth.
Try to find out why the owner is selling. Owners are more likely to be open to a low offer if they have a compelling reason to sell, like divorce or a death in the family.
Look for ads with language that indicate that the owner is willing to deal, such as: "will entertain all offers" or "willing to negotiate."
Remember that nearly all sellers think their homes are better than comparable ones on the market. If you make a low offer, it helps if you or your agent justifies it with dollar amounts that need to be spent to bring the house up to par. For instance, mention that the roof needs to be replaced and that it will cost about $20,000, or that the kitchen requires $35,000 worth of remodeling.

What Sells Homes in This Market: Price, Price, and Price

There is an interesting editorial over at Bloomberg by John Wasik today on selling homes in a down market. He goes through the typical litany of how down the housing market is, but inside of the piece he discusses what will sell a home in this market.
He focuses on pricing a home correctly, and I think he is dead on. I was out doing an information look at housing recently in a seaside southern city and was amazed at the huge distribution in housing prices. The city had seen a huge run up in housing costs, from an average of 185,000 in 2001 to over 400,000 in 2006. Now there is not a street that does not have a home for sale.
But driving around the housing prices were still priced with the full appreciation even though any logical person would scream that there are way to many homes on the market. It seems that the paper profit has been locked in by all parties and no one wants to be the first to cut their prices.
So the inventory is just sitting, lots of empty homes, builders asking for the moon, and real estate agents living on beans and rice. Yet we did come across a couple of homes that accepted reality and had cut their prices. My guess is that the next time I am looking in this city these homes will have been long been sold while the others whither on the vine.
When you price your property, you need to employ a strategy that can run counter to your emotional perception of the home’s value. That sometimes means listing at a price far below what you have anchored upon. Like any commodity, a home’s price will follow supply-and- demand trends. In theory, custom homes in desirable neighborhoods should hold their value. Other properties should be discounted depending on how many similar homes or condos are on the market. Every market is different, though. “If you don’t get any calls on your listing price after a week, drop your price $10,000 or about 2 percent of your original asking price,” Morgan says. “The market will tell you what the price of your home is. You better be priced 10 percent under your competition — and then be prepared to think about accepting offers under that.” I know that’s a disheartening strategy. Yet if you have to sell now, you need to take an honest look at housing inventories in your area. via John Wasik at Bloomberg.com

What is in a Word?

The real estate world has always used buzzwords when listing a home. These words will typically mean on thing when the agent see’s them and another for the general public. For example, when a real estate agent reads the word cozy they will picture claustrophobic while a buyer will read small but comfortable.

The Seattle Post Inquirer has a great chart on how these buzzwords affect housing sales by time on market and selling price. For the agents over this Thanksgiving Weekend, please put in your favorite buzzword and whether they work when selling a home both in pricing and how quickly it will sell.