Today we’re going to talk about a topic that isn’t exactly popular. In fact, it’s not even a topic that I’ve discussed recently in my videos or my blog. I think it’s been around three years since I did a video on this topic, and it’s been close to 10 years since I wrote a blog about it. The topic? Making low-ball offers on Bay Area homes .
So, if it’s not a popular topic, I haven’t covered it in years, and buyers don’t ask much about it, why are we going to discuss it today? Because buyers often look at home that have been on the market for a few weeks, and they start thinking about the idea of putting in a low-ball offer. In a lot of cases, even if buyers don’t completely believe that the strategy is going to work, they believe it’s worth a shot.
What Do Sellers Think of Low-Ball Offers?
In order to understand whether or not you should bother with a low-ball offer on a home in the Bay Area, it’s important to understand how sellers view these offers. Selling a home in any market is a largely psychological process. Sellers, especially those who are listing one of the fine homes in the greater San Francisco Bay area, usually don’t list a home while planning to receive a low-ball offer.
In fact, before a seller will get to the point of taking a lower offer on their property, they have to listen to what the market is telling them. The housing market speaks to everyone, buyers, sellers, agents, mortgage brokers, and everyone else. How does it speak to buyers?
One of the most obvious ways that the market speaks to buyers is through days on the market. In general, homes in the Bay Area start receiving competitive offers within only two weeks. Depending on location and other factors, a lot of my listings start getting great offers on home in a week or less! However, if a home sits on the market for one, maybe two months, the market is telling the seller that the home is overpriced. People will make offers on homes that are competitively priced. However, if a property is overpriced, many buyers will either ignore it, or they’ll start making low-ball offers.
There’s also a cultural impact to consider. The culture of the real estate industry in the San Francisco Bay area dictates that most buyers don’t get low-ball offers accepted. Like I said earlier, buyers rarely ask me how much lower they can come in with an offer. Instead, they ask me how much higher than asking they’re going to need to offer to get a property.
What is a Low-Ball Offer?
There’s also a question about what constitutes a low-ball offer. If a home is listed for $900,000, is an offer of $875,000 a low-ball offer? No, it’s not! The term “low ball” doesn’t mean any offer that is less than asking price.
Ultimately, the market dictates what a low-ball offer is on a property. However, that gets a bit more complicated, because the market doesn’t state the value of a home until after it’s sold. That means that a low-ball offer is based on what comparable properties are selling for in combination with the asking price of the home.
In general, I tell my buyer clients that a low-ball offer on a home is an offer that is more than 90% less than the asking price. That means that on that $800,000 home, a low-ball offer would be any offer of $720,000 or less. At that point, sellers may consider your offer a low ball.
Risks of Low-Ball Offers
There are multiple risks associated with making low-ball offers on home. First of all, and most obviously, you run the risk of your offer simply not being competitive with other offers. When I list a property, it’s not uncommon for me to receive anywhere between 10 and 20 offers on the property. Obviously, not every offer is going to be for the full asking price or higher, so when I’m presenting those offers to my seller, we look at them all. However, the offers that are for more money are clearly more enticing to my seller clients.
Additionally, you run the risk of alienating the seller. Remember, while you’re just looking at a home that’s on the market, you just see a house in a neighborhood that you like. The seller views that home as a place filled with memories, and their most important investment. No, that doesn’t mean that you need to pay extra for the seller’s sentimental feelings toward the home. But it does mean that you will need to be sure that you don’t insult the seller with an offer that is ridiculously low. When you do that, you run the risk of the seller being so insulted that he or she doesn’t even counter your offer, they just reject it.
Advice to Buyers
You should certainly do everything possible to get the best price on a home that you’re interested in buying. However, low balling an offer doesn’t really put you in a position to get the best deal. Instead, it puts you at risk of having your offer tossed to the side and completely ignored.
If you want a home and you believe it’s overpriced, and your realtor tells you that it’s overpriced, you have some options. First of all, you can wait for the market to tell the seller that their home is overpriced. If the home sits on the market for an extended period of time, you gain some negotiating power. However, you shouldn’t just sit and wait on the home’s price to drop. Instead, be sure that you’re out there looking at other listings. You may find that you like just as much for a price that works for you. Secondly, you can explain to the buyer while you’re considering offering less on the property. They may hear your thoughts and come to a price that works for both parties.
While every situation is different, every listing is unique, and every transaction has its own issues, it is incredibly rare for sellers in the Bay Area to take less than 90% of their asking price for a property. In fact, I would estimate that it happens in less than 3% of transactions. If you’re considering making a low-ball offer on a property, an offer that is less than 90% of the asking price, really take some time to consider the risk that you’re taking. It’s usually a better idea to take a step back, allow the market to tell the seller that the home is overpriced, and make a run at the property later on.