Making offers: when to lowball someone?

Question

So, when do you do something crazy like offer 50% for a property?  Or offer way below market value?

Do you do it just to kick off a negotiation?  Do you do it when you feel like the property is way overlisted?

What about when you know they have a ton of equity or have the property paid off and can take almost anything?

Also, how do you feel about lowballing people in general? Is it a strategy that has its place? Does it hurt your reputation as an investor, or set you up as a hard negotiator?

Would love to hear any tips, tricks, or lessons learned on starting out LOW!

Antoine Martel · Answer

You shouldn't be offering way below market value, you should offer a property for what you think its worth and what you think is a fair price for the property. 50% offer for a property will unlikely be accepted. Of course unless a property is over priced then you have place an offer for what you think its worth.

I think I've placed offers for 60% of list price. But that would be lowest.

Brian Pulaski · Answer

Honestly, I run my numbers and let them tell me what I can offer. I have offered under 40% of the asking price once. I had some info and was actually the highest bidder... ended up with the bank lowering the price and my best and final was 61% of the new lower price, but someone was willing to pay more.

I have bought houses with "low ball" offers and lost houses offering above asking. Just simply work your numbers, go in where you are comfortable and don't over pay.

Allan Rosso · Answer

@Shane Sams I don't think it's considered lowballing if that's the amount you came up with after running your numbers. For example, lets say you use the 70% rule to come up with a max offer on a $100K (ARV) property that needs $30K in repairs. You take the 70%, then subtract the amount for repairs, and you come up with a number of $40K max offer. Of course, you never want to start off at your max offer, so you "lowball" them at $30K. Depending on their situation, they may simply accept: Example: the home has been vacant for a while, belonged to their recently deceased parent and was willed to them, so $30k in their pocket for doing nothing seems pretty good to them. If they have a different situation and may get offended for you "lowballing" them, you may go back and forth (always stick to your max offer though). In these situations, its important to be knowledgeable and explain exactly why you're offering what you are: have a list of needed repairs and their prices, CMA's showing how you came up with your ARV, etc etc. If they have half a brain, they'll understand you're not really lowballing them, and then will make an educated decision whether or not to accept.

My partner and I are going into negotiations on a 5 property portfolio this coming weekend, and to prepare for it, we have a detailed "report" with lists of repairs needed, pictures, prices, etc. for each property, that will aid us in justifying our offers on them.

Hope this helps some!

Making offers: when to lowball someone?

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