How to Make a Lowball Offer
We have received more lowball offers on our listings in the past two months than in the previous two years. The real estate market is changing; there is little doubt about that. It's one of life's greatest ironies; everything constantly changes, yet people dislike change. In real estate, those who see change for what it is, and embrace it, are way ahead of the curve.
For those of you who want to be ahead of the curve, I will teach you how to successfully write a lowball offer. It's a skill that will undoubtedly come in handy for buyers over the next few years. My insights into this topic are borne from both my experience as a real estate investor and my experience as a real estate agent. I have successfully negotiated 1,000+ real estate contracts in my career. As a Listing Agent on Vancouver Island, I consistently help my clients sell their homes closer to the asking price than is typical in my markets. In short, I live and breathe real estate negotiation.
These days HGTV teaches people that they should write lowball offers. Real estate seminars are popping up everywhere, teaching people how to invest in real estate. There is one thing I find missing and the secret ingredient in a successful negotiation - perspective! That's the right perspective.
The Power of Perspective
You see, perspective is why this is such an exciting topic for me because I'm a Listing Agent. I haven't represented a buyer in a real estate negotiation in years, and here I am writing an article on how to successfully lowball a negotiation as a buyer. It's my perspective, from the sellers’ side of the negotiation table, which allows me to help you as a buyer best. And if you want to be successful, you'd be well advised to change your perspective and start looking at it from the seller's point of view.
Before we go any further, I think defining a smart lowball offer is important. A smart lowball offer opportunity presents itself when the Seller thinks the real estate is worth more than you believe the market will bear for it. Meaning as a buyer, if you like a property but you feel the Seller is asking too much money for it, it might be time to throw in a lowball offer. Randomly writing ridiculously low offers on house after house is not a smart strategy, nor one I could ever get behind.
Without further ado, here are my tips on successfully writing a lowball offer:
- Know what type of market you are in. Are you in a Buyer's Market or a Seller's Market? If you're in a Seller's Market, there is little point in writing a lowball offer. If you're in a Buyer's Market, proceed.
- Know the stats for your real estate market. Specifically, ask your real estate agent to tell you what the average house is selling for in the area as a percentage of the listing price. This will give you a mathematical understanding of what is reasonable because successfully writing a lowball offer is all about avoiding insulting the Seller.
- Armed with this info, it's time for you to think like a seller. How long has the house you're preparing to lowball been on the market? If it's in the first few weeks, the Seller will likely have a high degree of confidence in the process and will logically not be very receptive to a lowball offer.
- The Seller will likely be happier with an offer with a large deposit - so go big! The money is held safely in trust, and there is little reason not to go big.
- The Seller is going to favour offers with fewer Subject Conditions, so discuss with your real estate agents safe ways to reduce the number and duration of any Subject Conditions.
- Ask your real estate agent to find out ahead of time what type of time frame the Seller has in mind for closing/moving. If possible, go with that time frame in your offer. After all, your goal here is to get a favourable price, not favourable dates.
- Don't ever tell the Seller that you’ve offered a low price because it's all you can get financing approval for. That's the wrong perspective! The Seller doesn't care what you can afford, they are focused on getting the most money they can for their real estate. It also inadvertently sends the message that you are a poor financing risk!
- Use logic to explain the reason for your low offer price. Have your agent find 4-5 good, recent, comparable sales. Then, make notes by each one about the differences between the comparable and the subject property to explain how you came to your valuation. Just remember when writing the note to think from the Seller's perspective! Be very careful not to insult their home in any way.
- Remember that with a lowball offer negotiation, there will likely be 3-5 total counter offers. So build that into your strategy.
- Use time! Negotiations are a stressful process for everyone, even for professional negotiators - sometimes, making the other party wait (impatiently) overnight before you return a counteroffer can erode their resolve.
The intelligent negotiator will always get what they want by understanding the party across the table. Before negotiating on a client’s behalf, I always close my eyes and try to imagine what it feels like to be the other party (or, in my case, the other agent). This allows you to get what you want by ensuring that everyone gets what they want. Ultimately, the Seller wants to get the most money possible for their real estate, and even more importantly, they want to feel that they got the most money for their real estate. A successful negotiation is one in which all parties feel like they have won! Too often, buyers treat the process like only one side can win - it's simply a false perception.
A couple of final notes. If you get an accepted offer in place on a lowball offer, both parties will likely feel a little worn down. Refrain from thinking you can get a better deal by further renegotiating based on your building inspection. In my experience, if a Seller accepts well below the market average, they are not open to further negotiations. By asking for a reduction in the sale price in writing, you are opening up the contract, and the Seller will very likely choose to walk away.
If you do not successfully get an accepted offer in place on a lowball, then be patient. Walk away and resubmit your offer a few weeks or months later, once the seller has had ample opportunity to unsuccessfully try to get their price in the open market. I witnessed that exact scenario play out countless times in my career.
If you approach a lowball offer in good faith, act reasonably, know your market, and, most importantly, always approach the negotiation with the other party’s perspective clearly in your mind, you will find success as a real estate investor and negotiator.