"Lowballing" and Why It Rarely Works
(cross posted at my column at The Beach Reporter)
"Low balling", or the process of making very low offers on properties,is a technique that is taught by many a self-styled "real estate guru"on late night infomercials or expensive seminars. In theory, it soundsgreat -- make an offer much less than asking to see how desperate theseller is, especially if you have a very strong (perhaps all cash)offer. These gurus are filled with stories of how much money theysaved doing this. And of course, they make a lot of money by"teaching" people how to do it themselves, which was really the wholepoint of their actions.
In reality, the market sets the price,and Realtors have a saying that "there's a lid for every pot" or abuyer for every property IF the property is priced correctly. If aproperty is in a good location, meets your needs and is priced wellaccording to the comparable market analysis, then offering close toasking price or even more is NOT a bad idea. If the property IS a goodone and you offer a low ball price way less than asking, the mostlikely outcome is that your offer will be ignored, you will be wayoutbid by others who see the value in the property at the asking price,and you will not be offered a chance to participate in any multiplecounter offers. Many times sellers will refuse to even respond to whatthey consider an insultingly low offer.
What about when a property is over priced? Well,of course that is when you should bid lower than asking, but not simplyby applying some arbitrary percentage reduction like these gurusteach. You need to try to determine the fair market value and thestrength of your bargaining position (all cash? no loancontingencies?) and then base your opening bid accordingly. In thiscase, because the property is priced so high, it is possible that theSeller's will still ignore your offer as they don't understand or arenot willing to accept what the market is telling them, but at leastyou'll know when to stop bidding -- and they may call you back whenthey decide to face reality.
Seller's often don't understand whypricing a property too high ends up making all offers, even low ones,dry up. It is because Realtors have learned that the low ball offerrarely works, so they don't like to show property that is overpricedand they don't want to waste time writing up offers that will berejected. So if you are a Seller, don't price your property high, orno one will see it and be able to fall in love with it. At the rightprice, there will be offers, no matter what the property's challengesin terms of location, condition, or style may be.
The point weare making is that because the market demand sets the price, if aproperty meets all your needs, you should not just arbitrarily bidlower because "everyone else is" or you may lose the property tosomeone who took the time to understand the market. And if it doesn'tmeet your needs, then you didn't want to buy it anyway, right?