- Lowballing is Seasonal
- #1 – Lack of Knowledge
- #2 – Poor Selection of Real Estate Agent
- #3 – Failure to Provide Evidence
- #4 – Unsureness About Your Price Limit
- #5 – Obtuseness or Difficulty of Offer
- #6 – Disregard for the Supremacy of Cash
- Top Mistake when Searching
Lowballing is Seasonal
The Lake Tahoe community in California is heavily dependent upon skiing. In fact, the winter sport boosts the local economy there $564 million, according to Patrick Tierney, a professor at San Francisco State University.
Just like in Lake Tahoe, different elements of the economy change with the seasons. You may know that nationwide car sales tend to follow a seasonal pattern, and that’s the case with the housing market too. One of the best examples is that homebuyers are more likely to be successful with lowball offers in the fall. People often want to sell during the summer; once the fall hits and the holidays start to approach, sellers become more eager to close a deal.
Some even decided that they will wait for the market to get hot again, pausing promotion of their house until the new year. Even those people are often willing to take a lowball offer just to get the house out of their hair.
Going low with an offer will often prove successful when a home has failed to sell – so you will see many situations in which it works. However, it can also backfire. Here are a few mistakes to avoid.
#1 – Lack of Knowledge
You really want to have as much information as possible. Specifically, you want a market analysis comparing the property to sale prices of similar properties nearby to figure out a reasonable value.
Obviously, the farther you are below fair market value, the less likely that your lowball effort will work.
Also keep in mind that lowballing is highly location-specific. Anywhere that the market is skyrocketing, such as Northern Virginia or San Diego, you will have difficulty playing homebuyer limbo even in the fall.
#2 – Poor Selection of Real Estate Agent
Real estate agents will often be overly cautious about lowballing, says California real estate analyst Patrick Carlisle. Realtors who are new or otherwise desperate are more likely to move quickly toward a sale that gives them a strong commission. Some agents also just aren’t very good at negotiating.
“If it’s an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn’t going to get you anywhere,” says Carlisle. “But on a property that has been overlooked by the market and doesn’t have multiple bidders, it often doesn’t hurt to go in low.”
#3 – Failure to Provide Evidence
It’s unwise to just throw a lowball at the seller without providing fair justification. You should be able to tell the seller exactly why your offer is what it is, advises Atlanta Re/Max agent Bill Golden.
“Sellers want to know why you’re coming in so low,” says Golden. “Include recent [nearby sale prices] or issues with the property that validate why your offer is so low.” He also notes that you should be tactful and phrase everything constructively.
#4 – Unsureness About Your Price Limit
Everyone wants to get a good price on a house. Actually, the funny thing is that the primary motivation is social. According to Arizona State University real estate professor Jay Butler, no one wants to hear that they made a poor home purchase.
Obviously a sale is essentially a compromise: sellers are only willing to go so low. Usually that low threshold is determined by the seller’s level of equity.
If you want to submit an aggressive offer, you still want to know what you are really willing to pay, notes Carlisle. “At some price point, the deal is no longer worth doing, no matter how great the property.”
You certainly want to stick to any ceilings that you set – which typically means that it’s not a good idea to express absolutes within an initial offer. You can often sour a deal by stating that something is a “final offer” and then circling back around with another $5000.
#5 – Obtuseness or Difficulty of Offer
If you are really lowballing, your offer needs to otherwise be impressive to the seller. Let them know that you are ready to close immediately.
You don’t want anything blocking your ability to buy. For instance, you don’t want to have to sell your current house to free up the down payment for the new property.
Get your paperwork together too, particularly the mortgage pre-approval letter.
#6 – Disregard for the Supremacy of Cash
Don’t think that offering cash will always get you a deal because it won’t. Certainly, though, it doesn’t hurt to let the seller know that you are an all-cash buyer. People really do want cash in hand – although that doesn’t mean they will go below their minimum limit.
Cash is especially helpful if you are buying from a bank, as with a foreclosed property. A financial institution would prefer to get cash rather than wait for a mortgage to go through.
Top Mistake When Searching
As you can see, it’s easy to make missteps when you start negotiating a house deal, especially if you are truly low-balling the seller. Hopefully being aware of those common issues will help you avoid them.
In fact, the entire process of buying a home presents opportunities for errors. For instance, when searching for a home, many buyers fail to conduct their search using the quickest way to search real estate listings online, Realty.com. Find a new home now!