By Jasmine Eddy | 02.11.21
Everyone is trying to get the best deal for their dollars.
Whether you’re a first time homebuyer or a real estate investor, it’s tempting to make a lowball offer on a property.
The success of these offers depends on several factors.
Buyers who understand the elements at play in the real estate market have a better chance at having their lowball offers accepted.
What Does a Lowball Offer Mean?
Lowball offers are significantly lower than the asking price of a home.
Commonly an agent will recommend negotiating a price on a home that’s lower than the asking price. This is to get a better deal for their client.
But, a lowball offer is even lower than that.
Why Would Someone Accept a Lowball Offer?
Generally, one would assume that a seller wouldn’t ever consider taking an offer that is significantly less than their listing price.
But, there are times when sellers are willing to take a lowball offer seriously.
Reason #1: Market Health
A major factor that affects how a lowball offer is received is the market trend.
In markets where real estate deals are moving quickly and there’s high demand for property, such as a seller’s market, the sellers are less likely to accept a lowball offer.
There are too many potential buyers who would pay the full asking price (or more) for the property.
Lowball offers are typically unsuccessful in this kind of market environment.
Note: To know what to expect from the market this year, read the 2021 real estate market forecast.
Reason #2: Days on the Market
Another aspect that will determine how likely a lowball offer is to succeed is the days on the market.
A seller whose property has been on the market for one week may be less willing to consider a low offer than a seller who has been on the market for 3 months.
Properties that are new to the market have a high chance of securing higher offers, especially if they are priced correctly.
Houses that have been on the market for a while may be priced too high for their location or not be in the best shape. For buyers looking to purchase such properties, consider including a justification for the low price offer.
Reason #3: Motivation to Sell
Another factor that can determine whether or not the seller will accept a low offer is the seller’s motivation to sell.
For instance, if a seller has purchased another home or is in the process of relocating, they may be in a rush to get the property off their hands. The money may not be as important to them, so they will consider any offer, low or not.
Conversely, if the seller does not have time constraints or is selling specifically for the money, they are more inclined to wait for the best offer. If the owner is motivated to sell, a lowball offer has a higher chance to succeed.
Buyers can always ask the listing agent why the seller is selling the property. This information will give buyers an idea of how likely the seller is to accept a lowball offer.
When Should Buyers Make Lowball Offers?
Buyers need to be strategic when making lowball offers on a property. If a buyer comes across their dream home and the asking price is fair, it’s a good idea to make an offer close to the asking price.
For perspective, there are a few different options a seller has when faced with an offer. The seller can either accept the offer, propose a counter offer, or reject it outright.
If the offer is too low, especially on a well-priced listing, the buyer runs the risk of having the offer rejected and losing the opportunity to own that home.
If a buyer is still aiming for a lower price on the home, but wants to minimize the risk of getting rejected, making an offer no more than 10% less than the listing price is a great place to start.
It shows the seller that the buyer is serious about the home, but believes there is some room for negotiation regarding the asking price.
Real Estate Investors and Lowball Offers
A real estate investor has different goals than the average homebuyer, so they’ll take a different approach.
The goal for real estate investors is to make a profit from their properties. The general strategy is to buy low, improve the property, and then sell it for a higher asking price.
Again, lowball offers are likely to be rejected. To account for this, real estate investors will submit offers on several properties at a time to increase their odds of securing a property.
While this is a common strategy, investors do not always need to acquire properties through lowball offers.
Many buyers can make reasonable offers on a property and still make a great profit. For example, outdated homes or homes that are in states of disrepair are likely priced low.
Investors can buy those properties at a fair price, then do the necessary repairs and upgrades and add some more square footage to the property.
These are simple ways to create a higher property value and increase the profit margin, especially when the property is in a desirable location.
Final Thoughts on Lowballing a House
The success of lowball offers hinges on a few factors.
First, the availability of homes on the market and demand will dictate how likely sellers are to accept a lowball offer.
Markets with high demand (seller’s markets) may not be the optimal condition for lowball offers.
Conversely, sellers who have been on the market for longer periods of time are often likely to consider low offers on the property.
Those who have motivations to sell quickly may also entertain lowball offers.
Investors have more success when they make offers on several properties at once to increase the likelihood of having an offer accepted.