PART ONE of a 2-Part Series: Are ‘Low Balling’ Buyers Killing Your Deals
Let’s talk about lowball offers. What constitutes a ‘lowball’, when is it appropriate or not appropriate, and how can you encourage your buyer clients to stop insisting on offering a price that’s unlikely to result in an offer?
What is a lowball offer? Let’s define what it is since the term is thrown around all the time. By definition, a lowball offer is an offer that is significantly below market value.
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This is where the problem can start because, in practice, agents and their clients consider an offer to be a lowball if it’s significantly below the asking price. Asking price and market value are not always the same thing. This brings us to the first step in your Anti-Lowball Action Plan.
STEP ONE: Revisit your client’s qualifications. Maybe that’s why they want to come in low!
Review your buyer’s qualifications before putting your offer together. Speak with their lender to ensure you’re fully understanding their situation, especially as interest rates and lending standards change all the time. So do buyer’s credit scores, ratios, and downpayment funds. Even cash buyers can have their situations change depending on where their funds are coming from.
Some buyers are ‘lowballing’ because that’s their loan limit, and/or the limit of their comfort level. Their decision to lowball is based on their situation, not their opinion of the listing price, even though they’ll say to you that they believe the home is just overpriced.
Are you showing homes that are actually out of the buyer’s realistic price range? If so, it may be time for a strategy change.
STEP TWO: Determine if the listing is priced correctly.
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Determine the actual market value of the subject property. It may not be the same as the current list price. Do your own comparative market analysis (CMA), before making the offer, to determine value based on comps. Look at recently sold comparable, and pending sales, as well as how the house stacks up versus the active competition.
Is the listing priced right or isn’t it? Note: an offer that’s less than the list price of an over-priced home is NOT a lowball if it’s based on comparable sales. Attach your comparable sales with your offer to justify your offer price.
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Review the pertinent facts that can affect the price.
-How long has the listing been on the market?
-Have there been price changes?
-Has it been on and off the market several times over months or years?
-Has the seller recently corrected negative feedback?
-What are the average days on the market for homes like the listing?
-What is the list-to-sell price ratio for the sold and pending comparable sales?
-Has the seller recently rejected offers? If so, what was the reason?
-What else can the listing agent tell you about the seller’s situation, preferred deal terms like closing and possession dates, etc, which can help you put together an acceptable offer?
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How does the property look versus the competition?
Coming in lower than the list price on a home that’s been on the market for several months, with no competing offers, condition issues, and slow or no showings might be appropriate.
Coming in lower than the list price on a home that’s been on the market for 24 hours, has wall-to-wall showings, an open house planned this weekend, and all the comparable sales sold for higher than the list price does NOT warrant a lowball price.
See the difference?
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