Is it ok to make lowball offers as an investor?
Rental Property Investor · Philadelphia, PA · Member since 2020 · 83 posts · 23 votes
Hi,
I just finished listening to an episode on biggerpockets and the guest (investor) on there said she often makes lowball offers and hoping one would stick. I do love that idea; however, my question is does that come off as disrespectful to the seller's agent, especially if done repetitively? any other repercussions? Thanks!
You can make offers at any amount you want. There's a difference between a lowball offer and a ridiculous offer though. Don't worry about making an offer that might offend the seller...how do you know what they consider offensive? Some think any offer under their ridiculously high Asking Price is offensive. Some list ridiculously high to test the waters...or because their agent told them they could get that ridiculous amount...just to get the listing (they know the price will end up being lower...but they got their listing).
Make your offers based on your numbers that generate the numbers that gives you the deal you need. Don't make offers that you think you need to make just to get the property. The property isn't what's important. The deal is important, and the two are NOT the same thing.
It is disrespectful and your name will start to get out that your that way.
I would hate to be that agent that submits that offer to the sellers.
Both agents will not like it. I think a 90 percent offer is about as far as you can go down.
I have found that there are certain agents that under list a property and those properties should have an offer from you that morning. That would be a much better way to buy listed property!
Just my thoughts!
@David Avery thank you!
Got to give me a couple votes man!
You can make offers at any amount you want. There's a difference between a lowball offer and a ridiculous offer though. Don't worry about making an offer that might offend the seller...how do you know what they consider offensive? Some think any offer under their ridiculously high Asking Price is offensive. Some list ridiculously high to test the waters...or because their agent told them they could get that ridiculous amount...just to get the listing (they know the price will end up being lower...but they got their listing).
Make your offers based on your numbers that generate the numbers that gives you the deal you need. Don't make offers that you think you need to make just to get the property. The property isn't what's important. The deal is important, and the two are NOT the same thing.
You can do whatever you want that's legal @Vinh Nguyen. Lowballing is legal.
Are agents going to be itching to work with you knowing you're throwing 100 lowball offers hoping to close on one? Probably not.
If you develop the reputation of the "lowball guy" do you think people will bring you deals first in the future? Probably not.
From CT to CA we are in a seller's market. Lowball offers made sense in 2009-2012 then less and less ever since. Good properties out here are going under contract in 2-5 days sometimes over ask. If you're going to lowball on those houses you're just wasting your time if you ask me.
@Vinh Nguyen if you’re going to lowball, make sure you still have a strategy. If you lowball on the first day a property is listed you’re unlikely to get accepted. However, if the property has been sitting for 60-90 days you might have better luck.
Also, be honest with your agent about your plan. If they don’t want to be part of your plan respect that and find a buyer’s agent that is willing to work with you. Some agents won’t want to submit low offers for various reasons. After all, their name is also on that offer and it can be a small world within the agent community, especially for multi family properties.
Lastly, think about how low you’re talking about because “lowball” means different things to different people. Don’t waste your time with offers of $10 plus a coupon to Denny’s on a million dollar listing.
@Vinh Nguyen
I’ve done it and it’s worked for me. I always use the sellers agent. I tell them my offer and apologize if it’s insulting and explain why. I always have a top number I’m willing to pay. If I get turned down; I can always come back with a higher offer closer to my final number.
@John Morgan thank you! Could you please give an example of how you would start that, especially the reasons behind the offer? Im an investor who just got licensed by the way. Thanks!
Have your numbers worked out in a spreadsheet and ask that the spreadsheet be presented with the offer. You want to show the seller (and agent) how you arrived at the offering price and not just PFA (plucked from the air).
Lowballing just to lowball is a strategy, and if you're okay writing them up and presenting them, then you can. Everyone above replied before you stated that you were licensed, so they are looking at you using a buyer's agent to write and present for you.
If you're licensed and making offers for yourself, you can use the offered commission to reduce the sales price, too. That automatically makes your offer a few percent better. Just make sure your broker is okay with that.
On my listings I don't care if a lowball comes in. An offer is an offer, as long as it's in writing and real. Don't be the guy that keeps calling and trying to get the listing agent to verbally reduce the price, though. That will not work. I present to my sellers and we go from there. I have been surprised by my own sellers taking lower offers than I would advise, but we all have goals and places we need to be.
And even if the seller laughs or gets mad, at least we have a floor that we know it can sell for. I always solicit cash offers anyway, so your lowball isn't any worse than Offerpad or Z-offers or Opendoor after their "fees" (around 9-12%) are taken into account.
@John Morgan thank you! Could you please give an example of how you would start that, especially the reasons behind the offer? Im an investor who just got licensed by the way. Thanks!
An example of what I did on my last purchase last year low balling went like this. The house was just reduced from 180k to 160k after being on the market for 10 days. I wasn’t looking to buy but thought I might have a chance at this one because it was rented out and had a lease in place for 6 months. Not many people want to buy homes with leases in place for several months so I knew I had leverage. After using the listing agent to go see it, I told her I would be making a low cash offer within an hour. I told her all the big things that needed work and apologized if my offered offended the seller. So I came in at 120k cash. My top price I was willing to pay was 140k. The seller countered at 140 and I said thanks but no thanks and told the agent thanks for her time. I had nothing to lose to walk away at this point even though I was tempted to take it at 140. The seller came back 30 min later at 136k. I countered and we settled at 132k. This was all verbally done over the phone and by text. The land it’s on is worth 200k due to the location so I was happy to get this property even though I wasn’t even looking to buy.
So much of this is a function of your market. In my market, where every square inch of land is in some sense desirable, you can lowball all you want if you write your own offers (no buyer's agent will take your business for long) but you will end up either buying zero properties for all your time and effort or inadvertently buying a liability rather than an asset 99% of the time. In places where no one wants to buy, you have the field all to yourself.
Especially in this current climate, your offer should be based on your projections and not emotionally concerned with the Seller's expectation.
After all, a lot of sellers right now are asking for prices many buyers can consider disrespectful.
Give a fair offer always.
In this current market sellers are listing many properties above what they would appraise for. I’ve seen lots at an asking price of $300k but the market will only bear $150k for it. The seller is hoping someone comes along that has more money than sense and buys it. Also, I find many realtors aren’t spending 2-3hrs a day charting and studying market trends in a particular area like I do. Often times the buyer knows more about the market than the realtor. So, heck yeah... I submit low ball offers when it’s justified. I haven’t won one yet but I’ll keep trying when appropriate.
@Vinh Nguyen
Hi Vinh,
I agree with most comments here. Even though you can offer what you’d like, because you can, sometimes it is NOT a good look. Both realtors -listing agent and buyers agent will not like it. And your name will definitely be remembered... I guess just be mindful when doing so.
@Vinh Nguyen the answer to this question, in my experience, is use good judgement.
-Has the property been listed for a time period long outside of what is norm for the market?
-What is the motivation level of the seller?
-Is it bad condition and/or does it have difficult tenants?
-Would it be difficult for other people to finance?
Those investors who think "It's always okay to lowball" won't have a lot of great relationships in an industry where relationships are everything.
Those investors who think "I don't lowball because I don't want to offend" are costing themselves a lot of money over the years.
The answer is: It depends.
@Vinh Nguyen
I agree with both sides of the coin here, many have said if all you do is lowball, you likely will find yourself on a “not-wanted” poster or list of sorts and others say you can offer whatever you want to if it works for you and also add but it is best to run the numbers and base your offer from what the numbers and the research of that market area (as well as the length of time the property has been listed) to ensure your numbers are where you are basing your offer from.
I say both sides are right and I tend to lean more towards those that suggest running the numbers and doing you analysis so you know yourself that even if you submit what some may consider a so-called “lowball” offer that you offered that amount based off your analysis not just because you were trying to be ignorant and offer as little as you could. At least that way (like others mentioned) you can, if you choose to show the sell that the numbers don’t work out if you were to offer more and you weren’t try to insult them.
But as a side note, and I don’t mean this as a direct insult to anyone here that is a broker (because I don’t know any of you personally) but I have dealt with many, many brokers over the last 30 or so years and even had a major issue like what I am about to say, with our own personal property purchase, but sometimes brokers can either ruin a deal or even worse, can lie through their teeth and attempt to sabotage a deal if they feel you are not offering enough because that means their commission will drop too. In the matter of seeing them screw some deals up, I spent over 25+ years as a Conveyancing Paralegal so I worked on a lot of real estate transactions doing it all from top to bottom and so many times we had brokers that would cross the lines and we’d have buyers brokers helping the sellers doing one thing or another or telling them little secrets here or there about their clients and then we’d have the same thing happening the other way too of seller’s broker helping or telling seller’s secrets to the prospective buyers. They would create such a nightmare because the buyers or sellers would end up call us complaining about the issue that was revealed to the other side, as if we were the ones causing it. And my favorite one the often did was promising stuff to their clients that they had not right whatsoever promising, and I mean such things as they would get them discounts on something like their appraisal fee or something crazy like that and when the clients saw that there was no discount on the settlement statement they’d flip out and we’d be the ones that would have to explain that the broker had no right promising that.
But the ultimate “ignorant” broker problem I ran into was on a property hubby and I were buying and when we went to put in an offer (not this property had been advertised for over a year it was just a small piece of land) I had done my research in advance so I knew the seller, his address phone number, when he obtained the property even that he received it through an inheritance, everything, so I definitely had done my due diligence. So we contacted the broker to put in an offer and we were only going to put down a $100 with the offer paperwork and if accepted we would put down more earnest money. But the broker told us no the seller won’t except the offer without at least $1K down so I told her go put the offer in and then if he still says no fine we will discuss it then. Next day I didn’t hear from her, so I called her she claimed he would except it, I told her we’d get back to her. Being suspicious, I contacted the seller directly we had a wonderful conversation and found out she never contacted him at all. So we ended up going back forth like this with this broker through the whole deal and each time we’d call the seller to find out she never contacted him, he would have to contact her and practically tell her he knew someone was interested in the property. We told him he should fire her but he felt like he couldn’t. Anyway, we ended up doing the entire deal between ourselves and just going back and forth with the broker to keep up appearances. But dang straight she was right there on closing day to pick up her commission check.
So my point in all that (again I am not trying to say all brokers are idiots or anything like that) but just that sometimes the brokers can and will get offended by certain offers that you try to submit, but I feel it is not the brokers job to get involved in that part of the deal, they are hired to help the seller present his/her property in the best possible “light” so to speak in an effort to attempt to get the best possible price for the property and occasionally do a few necessities on the seller’s behalf (such as smoke cert., little things like that) and on the buyers side they are hired to find the properties that fit within the buyers parameters and help them arrange viewing and putting in offers (and occasionally they too will help with little things here and there like helping get HO ins., lining up the inspection, etc.). At least in this part of the country that is how it goes (Northeast Area, I’m in Mass. more specifically). Okay, well I think I have spewed way too much for one little post, so since I am probably going to get potentially a slew of “words” slung at me for this post I’m going to shut up now and turn the floor over to someone else, peace! ✌️
It depends on the market and DOM of the property (Days on Market). Is your lowball offer justified? Are you just throwing in an offer and hope it sticks? How many competing offers are on the home?
If the home is just listed lets say 10 days or less very unlikely you offer will be accepted. Seller psychology. Why would a seller take your offer it hasn't even been tested for long. Yes, some cases sellers will be offended with the offer. Real estate is emotional.
House has 10 offers and you still want to lowball? No way you just wasting your time.
The thing is markets change and we are in a super tight sellers market right now. Low ball with no justification for the offer is just a waste of time for everyone involved. Now if your offer has reasoning behind it, go for it.
When I am representing buyers that do not agree with the listing agents pricing, I make sure I respond to the showing feedback with facts and realistic repair costs supporting why I believe the pricing to be out of line. Then when the "low ball" offer comes in, it is not unexpected.
@Vinh Nguyen
There are many different ways to make offers.
Honestly, if my numbers don't work, I won't make an offer. I explain that and talk with the listing agent to explain why I can only be at X amount, the pros and cons, and how I see the property. I then ask them to make a verbal if they think it is too low, as I usually prefer to do double agency, and they like money too.
However, some people are going to come in lower than you, in a given amount of time. Thats a risk those who show up late run into.
Build a reputation in your market and a respect based professional relationship with agents in your area, so they are more willing to bring you pocket deals, so you can offer without competition.
Always remember, at the end of the day you and your family have to eat, but so do theirs.
Have integrity and discipline.
@Vinh Nguyen as I buyer and a seller if someone lowballs me I politely say no thanks and don't bother to make another offer. So it's OK to make a lowball offer but it's also OK for the sellers to say don't come back. As an example a few years back I got a quote for a tree removal from a company that was working in the neighborhood. The guy comes over and says $1500 and I say that's more that I have budgeted for. Then he says how about $750. Now that just pissed me off. $750 was a good price but I politely said get the F out of here.
I do business with honest people that aren't trying to rip me off.
@Vinh Nguyen A good agent will be able to help you find pain points that the seller may have. They may take less money if you let them stay for an extra month, offer to pay for a junk removal service if the place is a mess, Ofer cash for keys to get the current tenant out so you can occupy, and the list goes on and on. A skilled agent know that sometimes it is more about price and that real estate can become emotional for people.
As a perpetual low ball offer type of person you have to realize something. In todays market you are not going to get a lowball offer accepted with an MLS deal unless you are the only offer, or can close quickly and in all cash etc. So I would recommend going outside of the MLS - if you have no competition on offers you are more likely to get offers accepted.
The other thing is this. If you support the offer with evidence you'll have better luck. I have made offers with agents and said it is a standing offer, or been told no and a few days later have the seller come back with a lower number. If you know you numbers and are forceful in doing so you won't have any issues.
This is basically a go between on a the last property I purchased:
Agent: Nobody is buying this house wholesale
Me: Would it be okay if I reach out in a month to see if the seller has changed there mind when it is still for sale?
A few days later...
Agent: Would you be able to close quickly if I could get you in at 25k?
Me: No it would have to be 24k...
A few minutes later... offer accepted.
This specific instance I was being a pain in the *** just to be a pain in the ***. I almost never accept the first counter offer someone makes me. To me it seems that there is more meat on the bone.
I legitimately enjoy negotiating and honestly if someone thinks I am an ******* they probably are not wrong... Do I care if I potentially piss off a stranger with a low ball offer? Not really. That being said I also do immediately identify myself as a bottom of the barrel guy when someone asks me do you have an interest in XXX property.
@Vinh Nguyen my mentor taught me that I should be slightly embarrassed proposing my first offer. It's part of the business I follow that and have gotten them accepted before.
@Joe Villeneuve
Thank you for this great advice! Seems like this doesn’t apply to 2-3 unit homes that are turnkey? I’m new as well and at first I was making offers on the numbers that made the most sense. Lately, I switched gears and started making my calculations on offers that would actually “have a chance.”
It seems in this market ( I am located in northern NJ) and the fact that I am looking for move in ready MFH, offers that are asking price or below don’t stand a chance. How can a newbie go about mitigating this?