Responding to Lowball Real Estate Offers
Austin Real Estate Agents disagree on the best negotiating strategy for responding to lowball Real Estate offers. There are two general camps of thought. One philosophy says that the amount of an initial offer doesn’t matter, and that the seller should always respond to any offer with a counter-offer of the lowest ‘bottom dollar’ price she is willing to accept for the property. I not only disagree with this strategy, but believe it is fails to protect the seller’s best interests.
To put it harshly, it is incompetent and negligent, in my opinion, for an agent to advise a seller to disclose her bottom line price based upon nothing more than the existence of a lowball offer. Nevertheless, I’ve heard many veteran agents claim that this is the best response to any offer – that “any offer is a good offer and deserving of a counter-offer”.
Would this ham-handed technique be representative of the “expert negotiating skills” that we as Realtors hold forth as one of the primary reasons you should hire us? I hardly think so. Of course there are exceptions to every rule, but in general, in a healthy market with a properly priced home – and the seller being under no extraordinary duress – I think responding to a lowball offer with an immediate price decrease is a very poor negotiating strategy.
Another approach, the one I follow both as a listing agent and as a seller of my own properties, has always been to respond to lowball offers with a cordial “thanks, I appreciate the offer – really I do, but we’ll have to pass on it at this time”.
This strategy assumes that the offer is so low that you would not consider selling at or near the offer price under any circumstance, and that you are not selling under duress or time constraints. Declining the lowball offer is the same as counter-offering at full price, but puts the pressure on the buyer to decide if he is serious enough to adjust his offer price upward instead of forcing you to decide whether you are desperate enough to adjust your asking price downward.
Often, the buyer’s agent will respond with something like “well, can you give me an idea of whether we are even in the ball park?” or “help me out here, if we come back at $X, do you think the seller will counter?”
To these questions I will say to the other agent that the seller and I are confused by the offer and not sure how to respond, because the offer price is so far below the market value of the property we don’t know if the buyer is serious or not. I’ll ask whether the offer was based on a market analysis that they can provide. I’ll also ask if the buyer has some other rationale that I can provide my seller to help her understand how the offer price was determined. It’s important to not be offended by low offers, but also not to be suckered into effectively dropping your asking price just because somebody wants to start negotiating at a below-market price level.
Most often though, the lowball offer is based on nothing more than the buyer trying to discover the seller’s bottom price right away (which will actually work if the seller has a wimpy listing agent), or the buyer is just bottom-fishing for below-market deals and looking for nibbles. Don’t take the bait!
Are lowball offers insulting, evil and rude?
No, lowball offers are not insulting, evil or rude. As a listing agent or a seller, I am indeed thankful for any offer received on a listed property and believe any offer deserves a courteous and professional response. That response does not have to be in the form of a counter-offer though.
A lowball offer that is not accompanied by an explanation of rationale is counterproductive to finding the win/win price and terms sought by ordinary buyers and sellers negotiating in good faith. When I make aggressive offers on properties, either for myself or representing a buyer, I seek first to learn if the seller might be motivated by something other than the highest selling price.
If I don’t know for sure, and can only guess, I presume that the seller will at least be interested in having an offer to consider, and I move forward. I always write a friendly and humble letter explaining my thinking. I always try to give the seller favorable terms and conditions that he might value more than the highest selling price. This could be any of the following:
- – A shorter closing period (we’ve closed on property in as little as 4 days).
- – Higher Option Fee (the seller keeps this money if the deal doesn’t proceed).
- – Shorter Option Period.
- – Leasing the property back to the seller temporarily if we know that would be helpful.
- – Offering to purchase as-is with no inspection, repairs or option period. (Experienced investors/buyers only)
– Offering to purchase for cash (if the price is good enough to hedge the risk of a hidden surprise).
It is not uncommon for sellers to be motivated by factors other than the highest selling price, and if an offer is structured professionally with accompanying rationale, there is no sin in submitting an offer below market. This is the best way to find out if the seller has special wants or needs that can solved with terms and conditions other than price. This is in fact ‘good negotiating’ because it seeks first to solve a problem for the other party in a way that can be win/win.
Finally, how low is too low? What makes an offer a “lowball offer” as opposed to an offer that represents a good starting point for negotiating a fair price?
There is no hard and fast rule for knowing this other than to say, as a seller, you’ll know a lowball offer when you see one. And if your agent advises you to respond by counter-offering with your ‘bottom dollar’, ask your agent to justify that strategy. Make him explain to you how that bottom-dollar counter-offer will best serve your needs.