In some cases, making a low-ball offer can be a wise strategy, particularly when there is a buyer’s market, a low sell through rate (monthly sales to active listings ratio) or when a property has been on the market for an extended time period.
Writing a low-ball offer is not rocket science but to get the seller’s attention you should first speak with your real estate professional for their opinion and advice as to how to proceed with your offer. It is important to engage the seller in order to improve your chances for success.
1] Know the market.
If you are in a buyer’s market, this means there are a lot less active buyers (competition) and the market conditions more than the home’s listed price will determine how much your offer will be. Ask your real estate professional to provide you with a CMA (Comparative Market Analysis) that will clearly show what properties have sold for over the last year in the neighbourhoods you are looking to buy. These ‘sold’ prices will most likely be well below list prices, providing you with a good measuring stick as to what a given property’s present market value is.
Conversely if you are in a seller’s market, low-ball offers are very likely not going to be accepted and may not even be countered by the seller.
2] Days On Market ( DOM )
How long has the home been listed? As days turn into months the sellers usually will reduce the price of their property and adjust their price / sale expectations. Typically if a home has been on the market for more than ninety days, the chances are really good that the seller will be open to offers. The longer the ‘Days on Market’ the greater likelihood of having a lower offer being accepted.
When viewing properties that have been on the market for extended periods, ask your real estate agent to conduct research into possible reasons why the property has not been sold. If latent defects exist or potential ‘big ticket’ repairs or renovations are required, you are then negotiating from a position of strength.
3] Make your offer clean, with few subjects and keep it fair
If your intention is to write a low-ball offer, make it as subject free and clean as possible. The pain of a seller considering a low-ball offer can sometimes be offset by a quick sale with few subjects. Particularly if there is not a ‘Subject to financing” or “Subject to the sale of your property” clause in your offer. Don’t risk offending the seller or seller’s agent by writing an unreasonable offer or you may find the seller simply will not respond.
4] Create a strategy to appeal to the Seller, and ideally their reasons for selling
When viewing properties for sale with your real estate buyer’s agent, its always a good idea to know the reasons why a given seller has listed their home for sale. Have they bought another home? Are they selling because of a new job in another city? Perhaps they are downsizing? Or maybe there are some significant repair and maintenance issues. Sometimes it is a health issue and the seller just wants it sold. Either way, knowing the motivation of the seller is always a good thing as you determine what price you are prepared to offer.
Having your low-ball offer accepted will be dependant on a few different factors, starting with your strategy, the seller’s urgency, subjects and conditions contained in your offer, market conditions and whether or not your offer is reasonable.
Ultimately your success will be greatly enhanced if you work with your real estate professional to create a thorough strategic plan.