(cross posted at my column at The Beach Reporter)
“Low balling”, or the process of making very low offers on properties,is a technique that is taught by many a self-styled “real estate guru”on late night infomercials or expensive seminars. In theory, it sounds great — make an offer much less than asking to see how desperate the seller is, especially if you have a very strong (perhaps all cash) offer. These gurus are filled with stories of how much money they saved doing this. And of course, they make a lot of money by”teaching” people how to do it themselves, which was really the whole point of their actions.
In reality, the market sets the price,and Realtors have a saying that “there’s a lid for every pot” or a buyer for every property IF the property is priced correctly. If a property is in a good location, meets your needs and is priced well according to the comparable market analysis, then offering close to asking price or even more is NOT a bad idea. If the property IS a good one and you offer a low ball price way less than asking, the most likely outcome is that your offer will be ignored, you will be way outbid by others who see the value in the property at the asking price,and you will not be offered a chance to participate in any multiple counter offers. Many times sellers will refuse to even respond to whatthey consider an insultingly low offer.
What about when a property is over priced? Well,of course that is when you should bid lower than asking, but not simply by applying some arbitrary percentage reduction like these gurus teach. You need to try to determine the fair market value and the strength of your bargaining position (all cash? no loan contingencies?) and then base your opening bid accordingly. In this case, because the property is priced so high, it is possible that the Sellers will still ignore your offer as they don’t understand or are not willing to accept what the market is telling them, but at least you’ll know when to stop bidding — and they may call you back when they decide to face reality.
Seller’s often don’t understand why pricing a property too high ends up making all offers, even low ones, dry up. It is because Realtors have learned that the low ball offer rarely works, so they don’t like to show property that is overpriced and they don’t want to waste time writing up offers that will be rejected. So if you are a Seller, don’t price your property high, or no one will see it and be able to fall in love with it. At the right price, there will be offers, no matter what the property’s challenges in terms of location, condition, or style may be.
The point I am making is that because the market demand sets the price, if a property meets all your needs, you should not just arbitrarily bid lower because “everyone else is” or you may lose the property tosomeone who took the time to understand the market. And if it doesn’t meet your needs, then you didn’t want to buy it anyway, right?