Sellers, be prepared to negotiate ALL offers

lowball-offers It is no secret that today’s real estate market is favoring buyers. Inventories are high, time on market is longer than before, and buyers are able to be picky and are able to negotiate when they find a home that they like. In a slow market, many buyers will feel empowered to place low offers on homes, seeking the best deal possible. What is amazing to me is that there are still sellers (and their agents) who get totally offended by low offers and refuse to engage in negotiation and actively discourage submission of such an offer.

Selling a home is an highly emotional experience, even in a strong real estate market, so it is understandable why sellers would be reluctant to respond to a low offer. But sellers need to recognize that a lowball offer is not an insult, rather it is a starting point to a negotiation. Put yourself in the buyer’s shoes and realize that there are a variety of factors that drive them to make a low offer, none of which are a desire to insult the seller.

  1. Buyer lacks confidence in market – No one wants to lose money right away on a house if market prices decline. Negotiating a great deal upfront can somewhat insulate a buyer from these sorts of market declines.
  2. Buyer lacks confidence in their own finances – Buyers may be stretching financially to move into their dream house, or they may be worried about future income potentially or increased family expenses. Getting a better deal helps relieve these pressures.
  3. Buyers believe the listing price is unrealistic – Market value of a home can be highly subjective. Maybe the sellers refuse to acknowledge a price decline on their property, or maybe the buyers have not done adequate research to support the value. Either way it is the goal of a negotiation to bridge those differences.

We just encountered a situation with a buyer that illustrates the point pretty clearly. Our buyer was interested in a home that has been listed for over 200 days. The home is brand-new and was originally priced at $1.6M. The seller has reduced their price aggressively to the point where it is now listed at $1.2M. Our buyer has been watching the home for over six months and is very well-qualified. However, the buyer is still not willing to pay the $1.2M due to the factors I listed above. I approached the listing agent and mentioned that we are prepared to submit a written offer for $1.0M, to which he responded “Please don’t submit an offer that low. It isn’t high enough to get my seller to start talking.” I can’t help but think this is a huge mistake by the seller. We have a well-qualified buyer who has had his eye on the home for six months. I can guarantee that our buyer won’t pay the list price of $1.2M, but I can also guarantee that they are willing to come up from their offer price of $1.0M. Why not engage the buyer in a negotiation and see where things end up?

We’ve seen plenty of successful deals come together that started as “low offers”, sometimes with prices moving more than $100k in the negotiation process. There is no way to evaluate the true motivation of a buyer or seller without seeing a negotiation through to completion. Sometimes it may reach a dead end, but often it ends up in a deal.

Our advice is this. If you are a seller, swallow your pride and look at every written offer that comes your way, no matter how low it is. Instruct your agent to not discourage low offers, and make sure that you respond with a written counteroffer.