Should You Make a Lowball Offer on a House?
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Summary:
In the housing market, a lowball offer is a phrase used to describe a buyer making an offer on a home that is significantly lower than the asking price. For some sellers, lowball offers can be construed as a bit of an insult; others consider it a way to jumpstart negotiations. Before you make a lowball offer, however, be sure you’re doing it for the right reasons and at the right time.
Have you ever haggled in a marketplace? You see a rug you love and it’s priced at $20. When you offer $2, the vendor laughs in your face and says they’ll take $18. You go back and forth for a while, finally settle on $12, and everybody’s happy. They priced it at more than they thought they could get and ultimately got what they wanted. You lowballed them at first and ended up getting it for a better price than listed.
Albeit on a much smaller scale, that’s essentially the outcome of making a lowball offer on a house and going through the negotiation process to reach a fair price you’re both satisfied with. If you are going to make a lowball offer, be sure to do your research, give a valid reason, and be prepared to follow through if your offer is accepted.
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Should you lowball your offer?
Oftentimes, making lowball offers can help buyers save money while still being able to get the house they want. But before doing that, you will want to assess the current real estate market.
A great time to consider making a lowball offer on a home is during a buyer’s market. This means that there are a lot of houses for sale, but not very many buyers — basic supply and demand in practice. This puts buyers in the position of power because a seller has more limited options to sell their house and might be more amenable to accepting an offer that’s less than the listing price.
However, when you’re in a seller’s market, there are way more buyers than there are homes to sell. In other words, the demand for homes drastically outweighs the supply. As a result, home prices are high and they sell quickly — often at or even above the list price. The competition for the diminished supply means sellers are likely receiving multiple bids on their homes. As you probably guessed, a sellers market is typically not a good time to make a lowball offer.
The wrong time to make a lowball offer
In general, a seller’s market is not the right time to make a lowball house offer, but there are situations where it still might make sense to do so.
If, for example, you look for a house in a less in-demand area, or you’re a real estate investor looking for a fixer-upper to flip, you might still be able to get a good deal. Basically, if you find a house you’re interested in that has been on the market for a bit, a seller may entertain offers that come in below the asking price.
Plus, keep in mind that things always turn around and the real estate market is constantly changing. Eventually, supply will catch up with demand and the market will level out.
What is considered a lowball offer on a house?
Most real estate professionals agree that a lowball offer is an offer that is significantly less than the asking price for the home, in the neighborhood of 10% to 15% lower than the list price.
If you go any lower than that — without a really good reason — you risk insulting the seller who may decide not to consider any future offers from you at all. If you’re really interested in buying the property, you should carefully think over what you’re ultimately willing to pay, before making a super lowball offer outright.
There are only a few exceptions where that might be okay. For example, a lowball offer may be appropriate if your real estate agent does a comparative market analysis and finds that the home you’re interested in is wildly overpriced compared to similar homes. Another possibility is if the house is in need of major repairs.
Should you make a lowball offer on a home?
If you’ve determined that the current real estate market is more favorable to buyers and you are considering a lowball offer, it’s time to do your research before presenting your offer. In order to make this a successful real estate transaction, you should be able to accurately answer the following questions before you can hope to have your lowball offer accepted.
What is the quality of the home?
First, you want to confer with your real estate agent about the local housing market and how the home you want to buy stacks up to other, similar properties.
- Are the other houses in better shape than the one you have your eye on?
- Does your prospective house need a new roof?
- Have the other homes had newer updates made to them?
If you answer yes to any of these questions, a lowball offer might be appropriate. Thorough real estate agents should be able to guide you through getting these questions answered and assessing the overall market trend.
How long has it been on the market?
Another consideration is if the house has been on the market for a considerable period of time. If the house has only been listed for a few days, chances are the seller’s agent is going to advise their client not to consider a lowball offer.
But, if the house sits on the market for several weeks, you will definitely have a better chance of getting a good deal and paying lower than asking price.
Are you dealing with a motivated seller?
What is the seller’s motivation for listing the house? Perhaps they are moving for another job and are looking to make a quick sale. That could be in your favor.
Alternatively, they may be a retiree looking to downsize who can happily afford to wait for an offer closer to their asking price. Your real estate agent should be able to contact the listing agent to determine how motivated the seller is.
Making lowball offers
Let’s assume you’ve done your research and you and your real estate agent agree that the listing price is too high based on a comparative market analysis. You’ve also found out that the seller is motivated to move and that the house has been languishing on the market for some time. What now? How do you ensure you have the best chance of success?
Make a compelling case for your offer
Even though you might be making what is considered a lowball bid, you still want to convince the seller you are making a serious offer. This means laying out your case for why you are offering what you are and demonstrating that you are prepared to follow through.
Maybe the house is generally comparable to similar properties in the local housing market, but there are a few repairs needed. Does it need a new roof? Is the garage is falling down? Perhaps the appliances are considerably out-of-date. These are all good reasons to request a reduction in the asking price.
Meet the seller’s needs
Real estate deals can hinge on a number of factors aside from the asking price, so it’s in your best interest to try and anticipate and address the seller’s needs. You don’t want to give the seller any reason to reject your offer.
You might offer to be flexible on the closing date, for instance. Most home closings happen within 30-60 days, but if your seller needs more time or wants to get it done sooner, accommodating them can put you ahead of the pack.
Another possibility is to offer cash if you don’t need to finance the property. Many real estate professionals will say that paying cash really doesn’t matter in the scheme of things. At the end of the day, it’s all just money in the bank for the seller.
Having said that, however, if the seller is in a hurry, offering cash could tip the scales in your favor. Financing can take some time to set up and may fall through, so offering cash is never a terrible idea.
If offering cash isn’t an option for you, compare offers tailored to your financial situation to make sure your it doesn’t fall through.
Avoid unnecessary contingencies
If you’re asking the seller to accept less (especially significantly less) than the asking price, this is not the appropriate time to ask for any contingencies such as requesting any repairs or asking them to throw that sweet espresso maker into the deal.
During negotiations, consider offering alternative concessions
Sometimes the buyer and the seller will have a difficult time agreeing on an acceptable price. As you exchange offers and counter offers, the best deal might be to accept a higher price but ask for other concessions instead, such as a reduction in closing costs.
What if a seller rejects my lowball offer?
If you make a low offer and the seller rejects it without countering, they are clearly hoping for a better deal. It’s possible you’ve insulted the seller and you could be out of the running for good. If you realize you’re no longer competitive, you may have to go find another property to buy.
On the other hand, it’s possible you may have just jumped the gun. If you see the same house still on the market a few weeks later, it’s not a bad idea to try again, although you might want to sweeten your offer a little more as a sign of good faith. It’s possible you just got off on the wrong foot and the home seller might give you another chance to purchase your dream home.
Pro Tip
Don’t make a lowball offer unless you are fully prepared to follow through. Have all of your paperwork in order and your financing pre-approval letter at the ready.
How do you respond to a lowball offer?
If the shoe is on the other foot and you’re selling your home, what should you do if you receive a lowball offer from a buyer’s agent? Well, you have three choices: you can accept the offer, reject the offer, or make a counter offer.
- Accept. Accepting a lowball offer outright is bad business. Chances are pretty good potential buyers aren’t even expecting you to accept their initial offer, they’re just opening up the negotiation process. Even if you end up accepting less than the asking price, you’ll still probably make more extending the conversation instead of taking the first offer.
- Reject. You may be tempted to reject a lowball bid if you consider it way too low or insulting. After all, you put a lot of work into your home and you feel that you’re asking a fair price and your listing agent agrees. But before you reject the offer, make sure you’re doing the smart thing.
- Counter. If, on the other hand, you’ve had your house on the market for a few weeks with no other offers, you might have to consider if you’re asking more than the market will bear for your house. In that case, you might want to think about making a counter offer of just a few thousand less than your list price and see if you and the buyer can come to an agreement on an acceptable offer.
How do I get maximum real estate exposure for my home?
If you’re trying to sell your home, in a buyer’s market especially, you’ll want as much exposure as possible to get ahead of the competition. This means using all available outlets to your advantage.
Talk to your real estate agent about your best strategy, which should include professional-grade photos online and in printed materials that people can take home. You also want to have your home listed on multiple sites (with a virtual tour if possible) and you can share those links on social media for maximum real estate exposure. Don’t forget to have a thorough description of the property, highlighting its key features. Your realtor may also recommend an open house, but that’s up to you.
Key Takeaways
- Lowball offers describe bids on homes that are significantly lower than the asking price.
- The best time to attempt lowball offers is during a buyer’s market.
- The worst time to make a lowball offer is during a seller’s market unless you have an extremely compelling reason.
- Potential buyers should be prepared to make some additional concessions if they want the seller to accept an offer that’s below the listing price.
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