What incentive is there for a realtor to present low ball offers?

47 Replies

Hi everyone. Apologies if this question has been answered before, a quick search didn't come up with anything.

Anyway - a friend of mine who is a real estate agent sent me a property that has not come on the market yet. I just listened to the podcast "How to Buy Your First (or Next) Property by the End of the Year" - episode 247 and it was awesome. Brandon suggested making 1 offer per week and I love that, if nothing else for the experience in making offers and analyzing deals.

Here's my question: Why would my real estate agent buddy want to present my low ball offer to the seller? Isn't his goal to make as much money as possible? I just want to be considerate of his time since he is already answering my 9 million questions and sending me reports every day.

I appreciate any responses!

@Jessica G. ,

His incentive is that if you get the deal, you'll use him for the next one!

Originally posted by @Jessica G. :

Here's my question: Why would my real estate agent buddy want to present my low ball offer to the seller? Isn't his goal to make as much money as possible? I just want to be considerate of his time since he is already answering my 9 million questions and sending me reports every day.

 Possibilities...

1) Maybe it's a new agent with nothing better to do.

2) Maybe they aren't as "lowball" as you think.

3) Maybe you're paying the agent for their time. $150 per offer. Now YOU have an incentive not to be too silly with the lowballing.

4) [Most common for first-time homebuyers] Maybe you are new and need to get your heart broken a few times before you get serious, as a standard part of the process [the heart breaking, that is]. 

5) [combined with one or more of the above] Maybe you aren't expecting your agent to drive you all over the place before writing an offer and are visiting open houses on weekends on your own [lowballing, PLUS wanting them to drive you all over the place, is a quick way to frustrate an agent].

Hi @Jessica G. the main reason my realtor will present my low ball offer is because we have a relationship. He knows I will close when I say I will close, he knows financing is already in place. He knows that when I buy a personal residence even when it's out of his area I will use him. Like any other relationship it is give and take he understands the business that I am in and knows I'm not looking to pay retail. I also know the business he is in and don't needlessly waste his time, if I am presenting low ball offers there is a reason, long time on the market, needing a lot of repairs etc. I'm not finding brand spanking new houses that have been on the market for 12 hours and offering 70% of listing that would definitely be a waste of his time. 

@Jessica G. I think what you're missing is the "analyzing deals" piece of it.  When I hear "lowball" I generally think of two different scenarios:

1.) I did my analysis and it tells me I should pay between X and Y for a deal.  The list price is 15% higher than Y (my maximum).  I want to close around why so I make the offer at X which might be 20% below the list price.  Is that a lowball?  Maybe.  But it's based on my "reasonable" analysis and expectations.  And, by the way, I intend to happily close if we get a price under Y.  

2.) I see 10 properties that I think are listed at Fair Market Value and I decide to ask an agent to write 10 offers at 80% of list price just to see if anyone bites.  

And, for what it's worth, the world isn't exactly "fair" when it comes to new investors.  If I 20 homes in an area and have used a realtor to buy 15 of them, well, I'd imagine they'd write the 10 offers in Scenario #2.  Why?  They want to keep my business, they've made money with me in the past, they know I'll close, and they believe they'll make money with me in the future.  A lot of new investors never actually pull-the-trigger when it comes to real estate.  They putter around, make bad offers, don't close, and sometimes don't even have the ability to close.  I'd imagine any prudent realtor will treat those profiles differently.  

So at the moment I don't think we've established that your realtor buddy would *want* to present your lowball offer.  You have to come up with one first!  

And, by the way, you can always present a "lowball" offer but offset it by waiving inspection contingencies, offering all-cash, etc.  I know when I have my realtor put an offer out there it's with the intent that I'm not going to hassle them over "needing to paint" and short of a dead HVAC or a roof that's shot, I'm going to close on the property.

"Lowball + Checking Account Balance > Purchase Price" is a different equation than "Lowball + Not Even a Pre-Approval Letter + $0 EMD"

The answer is simple: sale = commission.  Low ball sales are still sales.  No sale = no commission.

Let's run the math real quick.  Market Value of a house is $100,000.  You "low ball" it at $70K.  If it sells, your agent gets a 3% commission.  $2100.  Meanwhile, if someone else "steals" it out from under you by offering full price, your agent gets $0 commission.  Even if you offer full price ($100K), the commission is only $3000.  Net difference of $900 between a full price sale and a low ball sale.  

Bird in the hand ($2100) is worth 1.25 birds in the bush.  Agents like to eat too.  Feed your agent and he/she will loyally present all the low-ball offers you want, within reason.  Maybe not 100 offers per day, but 5 low ball offers per week is not unreasonable if you're closing 10-15 deals per year with them.  Everything is on electronic forms these days, so it's not like agents have to fax papers and/or run all over town getting signatures and counter offers and more.

@Jessica G. keep in mind that realtors make commission, so it is a percentage of a deal. You can see in the comparison that his commission changes very little at each $10,000 drop. So this is less a matter of him worrying about his commission and more a matter of him wasting his time. 

$150,000 asking price

$150,000 offer, commission is 3% so $4500

$140,000 offer, commission is 3% so $4200

$130,000 offer, commission is 3% so $3900

$120,000 offer, commission is 3% so $3600

My advice is don't make low ball offers just for the sake of practicing. You can make low offers, but only if you sincerely are interested in buying the property. I think the point that Brandon is trying to make is that if you make weekly offers, you will find a deal sooner rather than later. Just be open with your realtor about what you are doing and he will tell you if it is a problem for him. It helps too if you have worked with a bank to show you are qualified. That way he knows you actually have the ability to close.

Thank you all for your responses! All of that makes SO MUCH SENSE.

And for what it’s worth if I can get someone to take my lower offer then hell yes I’m pulling that trigger!

I am currently getting my real estate broker license in Illinois and one of the duties an agent has with a client is obedience, he works for you and for your best interest, if you ask him to make an offer that may seem to be a "low ball offer" he should follow your orders. The same goes if you were selling the home, your agent must present all offers  regardless of price unless you've instructed him not to show offers under x amount but it must be in writing.

@Jessica G. It's not necessarily to make as much money on the deal. But to close the deal and get repeat business from you! 

I thought agents had to present all offers to the seller by law 

Lots of good advice here, but I'll add a couple thoughts. As you begin your investing venture it is VITAL that you find an agent who understands what you are doing and is patient and helpful. Those agents are out there, but it might take some time and effort to find them. Second- and every state is different, but in Idaho your agent is required to submit any offer you ask them to. They can "advise" you, but they still must submit. I've had many an agent tell me I was crazy or my offer was "disrespectful," and try to convince me to change the amount or the terms. But the craziest thing is that some of those offers have been accepted. I don't honestly believe that an agent wants to get to you bump up your offer for a few bucks just because that will end up in another $100 in commission, but more so because most agents are dealing with owner occupied offers and aren't as savvy or aggressive as they could or should be with investors.

That being said, I am not the type that fires off 10 offers a day. I offer only on properties that I know I want and I offer aggressively. That only happens a handful of times per year, if that. Find a great agent and make aggressive offers on properties that you are confident will make you money and you WILL close on. Good luck!

Investor friendly agents are in the game of low offers.  Retail agents are not.

@Corby Goade thank you for your response! I think where the lines are blurred a little for me is that this is a friend of mine and we don't have anything "official", he's just an investor himself and we talk about real estate a lot... and he sends me houses sometimes. So I guess I never thought about him "representing" me because I thought he was representing the seller. But everyone's info definitely makes sense!

Here's the thing about "low-ball" offers:

1. They're not low-ball if the seller's price is unreasonable based on the fair market value of the property, right now, in its current condition. A lot of sellers are completely unrealistic about what their house should sell for, and a lot of realtors just pump out numbers and encourage any kind of ridiculousness because their game is listings - selling 1% of 1000 listings is better than selling 5% of 100 listings. 

2. When you don't have any track record with the realtor, YOU should do the leg work. That means driving the neighborhood, looking at pictures online, looking at comps, etc. You might not be an expert at this but saving your realtor the time spent in driving all over creation will show you to be a serious investor.

3. Be prepared to close the deal. If you make an offer, you should have all your ducks in a row so that you're not backing out because the faucet drips and, oh, you also don't have any money. 

4. Provide your realtor the rationale for the offer. If the rationale is "I'm just going to throw out crazy numbers and see what sticks", they're going to be less enthusiastic than "I'm making this offer because comps in the neighborhood in the same condition are $X, and this house needs at least $X in renovation costs".

My realtor will present any offer I make, because we've closed so many deals together. If I make it, it's real. Once you get through a couple of deals with your realtor, they won't have to wonder if you're a tire kicker or an action-taker. 

Some agents care more about volume than maximizing each sale. If your lowball offer allows them to move on to the next commission really fast then they may support it.  If you do not have an agent and the seller's agent gets to keep the full commission they may be more supportive of your offer.  Some agents do not think this way but I suspect it is more common than they are willing to admit. 

Your realtor will hate you if your out just making lowball offers every week. Not only will he hate you eventually he's going to stop returning your calls. Lowball offers just don't work. They antagonize the sellers so they are less receptive of any future offers and they hurt your agents reputation. Real estate is about relationships and reputations. Don't ruin yours with this.

Thank each and every one of you for your responses, so much great information that will definitely be incorporated.

@Tyion Bridgeman my offers won’t be coming out of the clear blue sky, it will come from analysis and I love the idea of showing him how I got to that number. I’m only buying real estate if I can steal it, so yeah, low offers. I have yet to read or listen to anything that suggests otherwise. We have all of our ducks in a row if someone were to accept an offer. By the way this guy is the husband of one of my best girlfriends who I’ve known for years and was in their wedding... So he can run but he can’t hide...!!! Mwahahaha!!

Originally posted by @Jessica G. :

Thank each and every one of you for your responses, so much great information that will definitely be incorporated.

@Tyion Bridgeman my offers won’t be coming out of the clear blue sky, it will come from analysis and I love the idea of showing him how I got to that number. I’m only buying real estate if I can steal it, so yeah, low offers. I have yet to read or listen to anything that suggests otherwise. We have all of our ducks in a row if someone were to accept an offer. By the way this guy is the husband of one of my best girlfriends who I’ve known for years and was in their wedding... So he can run but he can’t hide...!!! Mwahahaha!!

 If you read my posts and listen to my podcasts then you will have read and listened to something that says otherwise.  If you are only looking to get a steal, you will probably never get in the game.  And you certainly cant win the game if you never get in the game and play.

Originally posted by @Russell Brazil :
Originally posted by @Jessica Geisler:

Thank each and every one of you for your responses, so much great information that will definitely be incorporated.

@Tyion Bridgeman my offers won’t be coming out of the clear blue sky, it will come from analysis and I love the idea of showing him how I got to that number. I’m only buying real estate if I can steal it, so yeah, low offers. I have yet to read or listen to anything that suggests otherwise. We have all of our ducks in a row if someone were to accept an offer. By the way this guy is the husband of one of my best girlfriends who I’ve known for years and was in their wedding... So he can run but he can’t hide...!!! Mwahahaha!!

 If you read my posts and listen to my podcasts then you will have read and listened to something that says otherwise.  If you are only looking to get a steal, you will probably never get in the game.  And you certainly cant win the game if you never get in the game and play.

 Hamilton reference? 

Originally posted by @Chris Mason :
Originally posted by @Russell Brazil:
Originally posted by @Jessica Geisler:

Thank each and every one of you for your responses, so much great information that will definitely be incorporated.

@Tyion Bridgeman my offers won’t be coming out of the clear blue sky, it will come from analysis and I love the idea of showing him how I got to that number. I’m only buying real estate if I can steal it, so yeah, low offers. I have yet to read or listen to anything that suggests otherwise. We have all of our ducks in a row if someone were to accept an offer. By the way this guy is the husband of one of my best girlfriends who I’ve known for years and was in their wedding... So he can run but he can’t hide...!!! Mwahahaha!!

 If you read my posts and listen to my podcasts then you will have read and listened to something that says otherwise.  If you are only looking to get a steal, you will probably never get in the game.  And you certainly cant win the game if you never get in the game and play.

 Hamilton reference? 

Hamilton as in the musical? I havnt seen it. And it cant be an actual Hamilton reference without baseball, or really sports existing during his time.

Originally posted by @Russell Brazil :
Originally posted by @Chris Mason:
Originally posted by @Russell Brazil:
Originally posted by @Jessica Geisler:

Thank each and every one of you for your responses, so much great information that will definitely be incorporated.

@Tyion Bridgeman my offers won’t be coming out of the clear blue sky, it will come from analysis and I love the idea of showing him how I got to that number. I’m only buying real estate if I can steal it, so yeah, low offers. I have yet to read or listen to anything that suggests otherwise. We have all of our ducks in a row if someone were to accept an offer. By the way this guy is the husband of one of my best girlfriends who I’ve known for years and was in their wedding... So he can run but he can’t hide...!!! Mwahahaha!!

 If you read my posts and listen to my podcasts then you will have read and listened to something that says otherwise.  If you are only looking to get a steal, you will probably never get in the game.  And you certainly cant win the game if you never get in the game and play.

 Hamilton reference? 

Hamilton as in the musical? I havnt seen it. And it cant be an actual Hamilton reference without baseball, or really sports existing during his time.

 Dueling is a sport! Anywho, give it about 4 seconds.

@Miguel Castillo / @Matthew Paul

In regards to: "I am currently getting my real estate broker license in Illinois and one of the duties an agent has with a client is obedience, he works for you and for your best interest, if you ask him to make an offer that may seem to be a "low ball offer" he should follow your orders. The same goes if you were selling the home, your agent must present all offers regardless of price unless you've instructed him not to show offers under x amount but it must be in writing."

The OP is referring to her buyers agent running around and making lots of lowball offers. While yes with my client I would be required to do the first one, odds are they would no longer be my client for the second one. Since they are not my client then I am not required to write anything for them. That is if I disagreed with them, happens all the time. I see the one that looks perfect. ARV is in at 125 about 30K in repairs, It's listed at 100K, days on market are high, I heard from the agent they are really motivated, I have some extra information. I figure a solid going in price leaving a bit of meat on the bone is 75K (I may have inside information they would accept it). I get a new client and take them in. When I lay it out and say we should offer in at 75 for it. 90% of the time they come back and say "offer them 35K". Like they are debating with me. I do it, the seller wants nothing to do with them anymore and I don't bother calling them on the one that comes in 3 days later. Now If I agreed with the lowball offer then yeah we are all good and will keep working together.

I also noticed many people put in math at 100K house they get 3000. Which is not entirely true. It gets broken up more like this

Total Commission: 3000

After 70/30 Brokers fee: 2100

After 30% stuck aside for takes: 1470 

Some agents are on 95/5's etc, but our monthly cost is up there. Figure a grand a month just to have your license there. When paying a mortgage payment a month you have to be moving inventory and time is money.

Just my 2 cents and good luck!

@Russell Brazil I think we are getting a little off topic but, no, I can't say I've listened to anything of yours. So you do not suggest buying real estate at a discount? I'm assuming that's not what you meant and if you're interpreting "steal" and "discount" as being two different things, then now we are just playing semantics.

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