Lowball offers — good idea or way to lose a deal?

We’re in a slow market in Ottawa; prices are  down, it’s taking longer to sell properties. In a hot market, you don’t see a lot of lowball offers but in a market like this, buyers sometimes come in with a lowball offer to see what will happen. Is this a good idea strategically? Is the old adage, that the first offer is always the best offer, true?

As a listing agent, I’ve seen many offers collapse without a counter back when an offer comes in so low that it offends the seller. This has been the case even where the seller has been an institutional seller rather than someone with an emotional attachment. They’ve looked at the lowball offer, decided they were too far apart to waste their time, and haven’t bothered to even respond to it.

In each of those situations, the seller was right. They waited, and got a better offer, sometimes a much better one.

Most times, when an agent comes in with a lowball offer, they let me know it wasn’t their idea. I even had one apologize to me in advance and point out that he knew his client was being unreasonable. Other times, I’ve had agents try to persuade me that the property was priced too high and that an offer that on its face was unreasonable (I had one where the offer was for 40% of the list price) was something my clients should deal with by way of counter, even though as far as I could see, they weren’t even on the same planet.

I am not a big proponent of lowball offers, personally. I think a buyer and seller are equally well served when a home is sold for a fair price.

The buyer pays what’s fair; the seller receives what’s fair. It’s reasonable, rather than predatory. Neither side is completely happy: the seller would have liked to get more, most likely, and the buyer would have preferred to pay less, but the price is defensible. And in many deals, there are glitches along the way where amendments to closing need to be negotiated or changes made to an agreement. If people have dealt with each other reasonably to begin with, those accommodations are more likely to be made.

So when I have a buyer who wants me to put in a lowball offer, I point out that they may close the door on negotiations. If they really want the property, starting out with something more reasonable is a better way to ensure they will get it.  Here’s a list of factors I suggest you consider before making one, because your argument in favour of a really low price needs to be persuasive.

  • How long has a property been on the market? If it’s only been listed for a week, forget it. No one is going to look at a lowball offer early on. But if it’s been on the market for months, it may be worth a try. (On the other hand, a property that’s been listed on the market for over a year with no price reductions means an owner who is emotionally invested in that price; they aren’t likely to move. Or sell, for that matter!)
  • Is it overvalued relative to comparables? In that case, what the owner thinks is lowball may be perfectly reasonable, so then it isn’t really a lowball offer at all.
  • How motivated is the seller? A vacant property that they are carrying may be one where the seller is prepared to take more of a hit than one they are living in without any particular reason to need to sell in a hurry.
  • Can you afford to pay more? Sometimes the amount the buyers are offering is all they have. If the buyers are making their very best offer, sometimes the agents will reduce their commissions to make the deal happen. Where the sellers are motivated, the property has been on the market for a while, and the agents are willing to work together, sometimes that commission reduction is enough to seal the deal.
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