The Art of the Low Ball Offer (Part 1)
Homebuyer Associates September (Part 1) 2011 E-Note
Homebuyer Associates www.homebuyerassociates.com
414.254.4129 homebuyeba@gmail.com
Michael D. Holloway/Seamus Holloway/Paul Wollersheim
The Art of the Low-Ball Offer
“I’m a freelance writer for MSN Real Estate and am working on an article about, ‘The art of the low-ball offer.’ I’m hoping to talk to an agent who can provide our readers with guidelines of how to make a lowball offer that will get accepted.” This, a question recently posed to me. Since I’ve been involved in over 1,400 real estate purchases I guess I was the person to ask.
I have experience with this question as it’s often asked of me, in various forms, by our clients or potential clients. My response is always the same, “I don’t know what a low-ball offer is.” I know what value is. I know what circumstance is but the term “low-ball” has no meaning for me.
Low-ball based on what? The asking price that may have been artificially set; an arbitrary number selected from some book (“always offer 20% less than asking”); a rule of thumb from some national magazine (“start low and be prepared to make 3 or 4 counter offers”)? How about this concept? Gather information on the home and the seller and then make an informed decision about how best to move forward.
Oh, I know when I make a low ball-offer for a client – and I tell them – along with the chances of it being accepted (each situation is different). But Homebuyer Associates low-ball offers are far different from what traditional agents – or consumers for that matter – view as a low ball offer.
Homebuyer Associate’s low ball offers have a starting point answered with the question, “what is the home worth?” Most agents and consumers fail to ask that question which, in my opinion, renders an offer defined as “low ball” without value. When asked if I’ll write a low ball offer I respond:
“Your friends probably bought a home for $210,000 with an asking price of $225,000. They considered it a low ball offer. They failed to ask what the home is worth. That means instead of wasting $25,000 on a home with a value of $200,000 they only wasted $10,000.
Following are two recent real life examples of homes purchased by our clients. In each case the lender’s appraisal was higher than the accepted offer.
Initial Asking Price Value Purchase Price
1. $429,000 $365,000 $350,000
2. $234,000 $205,000 $195,000
Each was based on a well researched offer looking at value and then circumstance. In one case we had to counsel not to try to buy the home but wait for it to sit and the price to fall.
It’s fair to say that some buyers or agents pretending to work for the buyer might have suggested an offer of $400,000 and $210,000 respectively or maybe $390,000 and $205,000. That process would have missed the point because neither addressed the question, what is the home worth? We asked the question.
Our market analysis showed a value of $365,000 for # 1 and $205,000 for # 2. That’s value. Circumstance led us to believe each could be purchased for less than value – and each was. Circumstance is different than value.
We explained to our clients that by making such an offer someone else may come in and offer more during the negotiation process but that we considered that unlikely in the present day market. If our clients were willing to take the chance on our “low ball” recommendation we were willing to take a chance.
In each negotiation our approach worked on behalf of our client. Ah, negotiation, it’s one thing to be smart enough to ask “what is the home worth?” but quite another to be able to carry through on the successful negotiation.
I’ll provide some insight on that process in Part II of The Art of the Low-Ball Offer.