What incentive is there for a realtor to present low ball offers?
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!
Good input, I am looking at properties right now and that's usually what I do, check the ARV and make an offer usually 20% under list price depending on the amount of work needed.
@Account Closed that's basically how I get to what I would offer on a property and to me that's low ball because like Callum said, houses are selling over asking every day in our area. So that's why I can't see why anyone who has any clue as to what the market is doing would sell low! But hopefully I'll find out very soon :)
It's a numbers game.
You could make your low ball offers more attractive to the seller such as cash offers, close in 14 days, or if you're experienced, forgo some contingencies (but you might lose your EM if you don't close).
#2 Contractors Contributor
- Severna Park, MD
To me , there is no such thing as a " low ball" offer . Its just an offer . Since in investing you make your money on the "buy" . An offer is only the starting point in an negotiation in business . A property , a car , a boat anything that someone is selling has a value to the seller and a value to the buyer . Its just a matter of finding the number and terms that both parties agree upon .
Until a third party offers more than I do , my offer is the value of the property
@Chris T. thanks for that advice! @Matthew Paul Great point.
Originally posted by @Matthew Paul:
I thought agents had to present all offers to the seller by law
All LISTING agents have to present all offers to the Seller UNLESS instructed by the Seller to exclude certain offers (like lowball offers).
But a Buyer requesting that a Realtor write up and submit an offer can be refused by that Realtor. Realtors are not required to work with people that waste their time.
#2 Contractors Contributor
- Severna Park, MD
@Cara Lonsdale Well whats one real estate agents waste of time is another agents commission .
My personal house was listed for $ 500K , i went to an agent I know and wanted to put in an offer for $ 425,000 . They didnt want to do it , said I was insulting the seller . I went 1 block down to another office , walked in and told the agent on duty I wanted to make an offer on a house . I gave them the info , and my price and MY terms . The guy wrote it up and submitted it . And the seller rejected it . They wanted full price . So I told them to hang on to the offer . Then 3 months later I get a call asking if my offer was still good , I told him yes , BUT I want 5 grand towards closing .
Agent number 2 made a nice payday . Agent number 1 was pissed .
Originally posted by @Matthew Paul:
@Cara Lonsdale Well whats one real estate agents waste of time is another agents commission .
My personal house was listed for $ 500K , i went to an agent I know and wanted to put in an offer for $ 425,000 . They didnt want to do it , said I was insulting the seller . I went 1 block down to another office , walked in and told the agent on duty I wanted to make an offer on a house . I gave them the info , and my price and MY terms . The guy wrote it up and submitted it . And the seller rejected it . They wanted full price . So I told them to hang on to the offer . Then 3 months later I get a call asking if my offer was still good , I told him yes , BUT I want 5 grand towards closing .
Agent number 2 made a nice payday . Agent number 1 was pissed .
That's a nice little story about 1 single transaction.
The truth of the matter is that investors that like to make low ball offers put in tons of offers before 1 goes through. Do you know how much work goes into doing that? In many states the offer process is quite lengthy. Offer packages can be upwards of 25 pages of offer and addenda. FOR EACH OFFER. Not to mention the research that goes into each one. The process leading up to an offer can be days/weeks/months! Do YOU work that long without the promise of pay at your job?
I don't want to make this about Realtors and how they earn their commission. There are plenty of other forum threads dedicated to that. However, your one off story about how it all came together for you in the end on a personal transaction is not the norm of what we are talking about here. We are talking about investors who throw out low ball offers just for the sake of doing so in the hopes that something will stick. That strategy really IS a waste of time for the Realtor who has to do all of the work on ALL of the properties the investor wants to make offers on, just to have all but 1 (if that) accepted.
What it comes down to (and many Realtors just don't know how to convey this to clients) is there needs to be a strategy. Offering low just because is not a strategy. If you are partnered with a smart, capable Realtor who gets investors (or is one himself/herself) you can create a pricing strategy that ensures a higher success rate. This could be formulating a price that works for you and hand picking comps to justify it. It could mean offering less of a low ball price, but asking for concessions. Not all Sellers work with a bottom line. Sometimes they have a specific price in mind, or are dead set against paying for the Buyer's closing costs, or don't like other terms. So, you have to be smart about what you are offering, and in what combination. A smart pricing strategy is about finding the best mix of price/timing/concessions to make it seem like a good deal for both the Buyer and Seller.
If the Seller takes one look at your offer and sniffs low ball on it, it won't even be considered, and most Realtors know that, and won't do all that work just get the answer they already know is coming.
#2 Contractors Contributor
- Severna Park, MD
@Cara Lonsdale Well I do lots of work I dont get paid for , I am a contractor and am constantly working up estimates , pricing materials , and present it to customers and then I dont get the job . Its simply part of the business .
I dont expect or want to get every job . If I wanted every job I would price lower .
My estimates are 25 pages plus . Plus the time spent talking to the customer .
But as an investor , and I want to make an offer on a property I dont explain myself to an agent . I do my own research , I set the terms , I set my price . The 2 things an agent has to do for me is show the property and present the offer . usually the computer prints out the offer in about 15 minutes .
A contractor and a real estate agent do have 1 thing in common . Their pay is based on what they put into it . Both chase work and dont always get the job .
Nothing against agents , but I have always gotten better deals dealing straight with the seller . Faster , easier and cheaper .
In CT as Realtors, we have to present ALL offers to the Seller regardless of amount. So there isn’t an “incentive” as it’s our duty.
Originally posted by @Matthew Paul:@Cara Lonsdale Well I do lots of work I dont get paid for , I am a contractor and am constantly working up estimates , pricing materials , and present it to customers and then I dont get the job . Its simply part of the business .
I dont expect or want to get every job . If I wanted every job I would price lower .
My estimates are 25 pages plus . Plus the time spent talking to the customer .
But as an investor , and I want to make an offer on a property I dont explain myself to an agent . I do my own research , I set the terms , I set my price . The 2 things an agent has to do for me is show the property and present the offer . usually the computer prints out the offer in about 15 minutes .
A contractor and a real estate agent do have 1 thing in common . Their pay is based on what they put into it . Both chase work and dont always get the job .
Nothing against agents , but I have always gotten better deals dealing straight with the seller . Faster , easier and cheaper .
I appreciate your analogy, although not near the same. Your scenario involves many clients with 1 property to get a quote from.
If you want to speak in apples - to - apples terms, Picture 1 client who brings you 25 properties throughout the City, and requests quotes on all 25. So, you go through the process you described for each of them, only to have the client tell you that only 1 of them will move forward, or worse yet, NONE of them do.
Now multiply that by 10 clients that call you....each of them for their 25 properties that all need you to quote them out.
NOW you are within the realm of what a Realtor deals with in their every day life.
Again, I explain this NOT to begin any kind of argument with you, but rather to offer you a better understanding of what Realtors deal with. You are ABSOLUTELY right in that we work on commission. So, knowing that, doesn't it make the most sense that Realtors would focus their time on the activities that will yield the best results?? Just like your ability to turn down business, Realtors have the same ability, and will exercise it when faced with the opportunity to do alot of work for low risk of return vs working with another Buyer, Seller or Investor who provides better opportunities to close deals.
#2 Contractors Contributor
- Severna Park, MD
Well if somebody is getting you to chase 25 properties as a crap shoot to see what sticks , I can see your point . But when a serious investor , wants to place an offer on a house and has done their research . And they want you to present a offer much lower than asking price . Thats a piece of cake for an agent . Thats what I do when I get involved with a MLS property . And what 3 others I know do .
Simply, Realtors or any profesional for that matter do what make sense. If I have no deals going on, I'll take on any client, If my schedule is busy, I'l pick my best options.
I know it’s been said a few times but as a real estate broker, a deal is a deal and any opportunity to make a commission is better then no commission. If they work hard for you and represent you well you will have a great member of your team and as your business grows so will his.
The other incentive is the word of mouth. If you talk about your great realtor to friends and family and send him referrals he will love you forever!
A book I read once had a good theory that basically said he aimed for getting about 10-20% of his offers accepted, obviously the math will differ based on how the market is and each person, but the gist is you should be making offers that suit yourself that will be a good deal for you and not just making offers because you really want the place. If the majority of your offers are getting accepted, chances are you're paying more than you need to.
Especially as investors, we have a MUCH wider range of potential properties to select from and bid on that people who are looking for a place to actually live in. Therefore, we can be much more conservative with our bids and less afraid to lowball and lose the bid.
Why realtors would actually present a low ball offer?
Well they usually only get paid off %'s (ie. 3% on first 100K and 1% on subsequent 100K) so a lowball offer won't really take that much out of their pocket and a sale is better than no sale. Realtors will typically advise you though if your offer is way too low and has no chance to win at all. My realtor recently mentioned he had a client who kept wanting to bid way too low and he was happy to do the paperwork for him believing that after he loses a few offers that he'd realize he needed to increase the bid amount and he'd still end up getting the sale eventually.
A realtor has an obligation to do so plus there is always a chance to get the offer accepted and recieve a comission.
In our area agents are seriously working on deals. Competitions are fierce. These low ball offers presented by the agents just lost their credibility.
Reputation counts in RE business. Only reputable professionals get the deals through. That also include preapprove letters. Local reputable loan agent or major lenders.
Originally posted by @Davin Sundvick:
A realtor has an obligation to do so plus there is always a chance to get the offer accepted and recieve a comission.
To clarify, only the LISTING agent is obligated to present offers to the Seller, and CAN withhold offers that the Seller has instructed them to exclude. A Buyer Broker can refuse to present any offer and/or work with any client.
That's interesting, in Nevada it is worded that all offers are to be presented. "ALL offers made by or to the client shall be presented as soon as practicable." On the Nevada duties owed. Pretty weird how different all the laws are!
I suppose if the agent and client signed an "exclusive right to represent" then your point is valid. Then they have an exclusive signed agency. If the buyer is not using other agents and their only option is to use their agent, I would agree. If the buyer is using any and every agent on every other property.... I may disagree. Not many investors will say "This is my one and only agent".... Although I do know a couple and they are my first call on everything.
I think if the Real Estate Agent is doing a good job then this issue shouldn't be that big or common from your Client. You should do a great job at presenting how the market is performing and detail the absorption rates in your market and what type of offers are getting traction.
It does them ZERO good to submit offers on properties where they have no shot because of the competition. In an environment where the competition is little or none then low ball offers might have a shot after being submitted a few times and sat on over the course of its time spent on the market.... and thats if the property is on the MLS.
Right now....if one is submitting low ball offers then I'd assume the property isn't on the market and the offer is cash with super quick close. We are in a seller's market and in Az at least, stuff under 300k isn't lasting at all.... no way does any low ball offer stand a chance in this market here unless the timing is impeccable and the seller is in a weird situation. Sometimes a flipper might totally mess up their plans and dump an asset for a loss, which means your timing was amazing.
I also didn't read much of this forum so I am sorry if one said something similar already.
Cody B
I think I've gotten the information I needed, thanks everyone!