When is a low-ball offer not a low-ball offer?

$5K-$10K below fair value doesn't even sound like a lowball offer to me. That's around 1 - 2% off today's prices - not much of a discount. I could see calling a 10% discount a lowball, perhaps, but calling a $5K - $10K discount a lowball just reinforces the stereotype that today's sellers are stubborn to a fault. Why wouldn't they take a small ($5K - $10K) hit now to guarantee an immediate sale when the carrying costs (taxes, maintenance, insurance) will surely exceed that if they miss this year's selling season?

Hi anon,

I can't explain seller's motivation, since I work on the buyer's side only. However, when I work with the true market value of a property -- not the asking price, which can have nothing to do with reality -- I find that sellers almost never accept much more than $5-10K below what a property is really worth.

If a seller is not living there, has high overhead, or is pre-foreclosure, then he/she is very compromised. The house is compromised by bad condition or location. If either or both of those conditions exist, there may (or may not!) be more discounting possible.

I get irked by the "insult" of being called a low-baller when my buyer was offering full market value. Sellers in denial are a waste of my time.

Rona, I would get irked too. This is a big reason why I am sitting on the sidelines rather than searching for my first home now. I get the impression that sellers in denial are the norm, and I would prefer an atmosphere where they are at least courteous about receiving an offer even if they decline or counter. I think it may take a little time for the entitlement attitude of the last few years to wear off, and I am waiting it out until then.

In this market, I wouldn't even make an initial offer that was above 90% of what I felt the home was worth. It's the seller's choice to reject, accept, or counter. There are plenty of homes for sale right now and if the seller feels too insulted to negotiate, good luck to them...

Can you define the research you do? Do you visit comparables that have sold or only look at photos on MLS? Just curious about how you determine fair market value unless you physically visit recent sales? I completely agree about "buggy" valuation websites, but there are "buggy" agents too, aren't there?

If a property is worth what a buyer will pay for it, then how is lowballing even possible?

If I go into a neighborhood where the median house price is obscene (pick one...) and I offer what I believe to be a fair price on the house, I'd probably be accused of lowballing. The reason for that is because I'd be offering a price based on the median income and median rent for a comparable amount of living space, rather than what the last person to sell a house on that street got for it.

I'm no realtor, nor an economist. I'm just some schmuck who got priced out forever because he wasn't willing to incur more debt than he could afford. That said, it seems to me that what a house is actually worth is tied more closely to what rents in the area are, rather than whatever the latest ARM patsy paid for a comparable house in the same neighborhood.

Houses are not baseball cards. They have intrinsic, quantifiable values based on structural integrity, amount of livable space, and proximity to desirable amenities.

The market value may be whatever the biggest idiot will pay, but what a house is worth is a different number entirely. But at this point, I guess I'm arguing semantics. To someone who sells houses for a living, what a house is worth and the market value might as well be the same thing. For me, though, the disparity between what houses are worth and what they sell for is keeping me renting, and keeping me looking outside Massachusetts for a place to rent.

They can be insulted all they want for all I care. How about the fact that I'M INSULTED that people expect me to pay half a million dollars for a 3 bedroom ranch in many towns around Boston that they paid $150,000 for 7 years ago!!!!

I have been working with a buyer agent for 2 months now and I am very disappointed with the so-called CMA (comparative market analysis). Every time she did CMA, she would come up a value of 10K less than asking price. Sure enough, the CMAs were all backed up by 4-5 comparatives that are sold that 95-100% of asking price. But I always wonder, doesn't it sound strange that all the houses I am interested in are priced almost-right, and some of them have sit on market for months?

The logic is obvious, only the houses that are priced right in the first place will get offers and get sold. therefore, 95-100% of asking price. The rest of them are still sitting on market needing a reduction or low-balling.

There is no point doing such thing like CMA, especially by the "buyer agent" who clearly has a conflict of interest with the buyer. I would only appreciate their showing and paperwork. It has become clear to me that while I am still holding the money, I can low-ball however I want. And for houses siting on market for months or years, the only way to wake up the seller is low-balling. They might feel insulted, not by me but the market.

I have been working with a buyer agent for 2 months now and I am very disappointed with the so-called CMA (comparative market analysis). Every time she did CMA, she would come up a value of 10K less than asking price. Sure enough, the CMAs were all backed up by 4-5 comparatives that are sold that 95-100% of asking price. But I always wonder, doesn't it sound strange that all the houses I am interested in are priced almost-right, and some of them have sit on market for months?

The logic is obvious, only the houses that are priced right in the first place will get offers and get sold. therefore, 95-100% of asking price. The rest of them are still sitting on market needing a reduction or low-balling.

There is no point doing such thing like CMA, especially by the "buyer agent" who clearly has a conflict of interest with the buyer. I would only appreciate their showing and paperwork. It has become clear to me that while I am still holding the money, I can low-ball however I want. And for houses siting on market for months or years, the only way to wake up the seller is low-balling. They might feel insulted, not by me but the market.

Hi everyone,

I think you are all missing the point here.

First of all, asking prices are a fiction. If you are negotiating based on asking prices, you are whistling in the dark.

Second, if you hire a “buyer’s agent” who doesn’t work for you, you have not hired a buyer’s agent. An agent owes you undivided loyalty, without conflicts of interest. If you aren’t getting that, you have the wrong person working for you.

Third and most important: true low-balling just does not work. The seller is not going to accept an offer well below what a place is worth unless the seller is in real trouble. Even then, the seller will sell a property at below its real value to a friend or relative long before taking a true loss to a stranger.

Fourth and less important: buyers and sellers who are out there buying and selling think in real numbers, not percentages. You will understand the impact of negotiation better by thinking in terms of paying $20,000 below asking instead of thinking 2% below asking.

Fifth and least important: I could not care less if the seller is insulted. For that matter, if you are insulted by the market, so be it! The market is the market. As long as buyers are willing to pay these prices, then these prices will prevail. I would prefer to see them come down some more to make room for the buyers who want to get in. But, this is beyond my control. I don’t make the market; I report on it.

Rona, thanks for the comment. I, however, haven't been convinced by the "worth" of a house. When I look at houses, I honestly don't know what the true value is. So don't my agent and the seller. I would count the bricks and shingles to come up with a value instead of CMA. Especially in Boston, there are essentially no comparatives since there are not many new, arrayed buildings, every house is unique. Therefore the only rule that I stick to is, if the house has been sitting for a while, the price is wrong. You said it right, bargaining against asking price is stupid. However, in reality, from all the CMA I received, the only thing that's consistent is the SP/LP (sale/listing), always 95%-100%.

As for buyer agent, deny it or not, the conflict of interest is there. Agent wants easy deal and buyer wants low price. the quicker the agent gets paid, the worse the deal. How do you overcome that? Only way I can think of, is some reward program to get the seller agent really motivated to fight for the price.

Dear Le,
I cannot disagree with you more.
Within a margin of error, it is possible to get a fairly good estimate of a home’s value based on what other buyers have paid for something like it. Every home is unique, but that is why a CMA must be done carefully to adjust for the variations. That takes time, experience and patience. My CMAs do not consistently come out 95%-100% of the asking price. I don’t know who you are working with!

As for the conflict of interest, I understand why you think I have one. But there are agents out there that have integrity. You don’t know me, but my clients do! I am downright famous for talking buyers out of buying, for talking buyers out of specific houses, for convincing them to walk away, and for sticking with them if they have a viable plan to buy. Because I do the right thing, I make somewhat less per hour. But I have a reward program; it's called a referral.I spend almost nothing on advertising because my clients come from my clients. "Buyer's agents" who push buyers into overpaying should not get recommended by former clients. Again, I don’t know who you are working with!

Rona, if I were to say to you that I am only interested in making offers of at least 15% below what is supposedly market value (since that is where the futures market says Boston prices will be in 2010), would you tell me to find a different buyer's agent? I could care less if sellers aren't thinking in percentages or if this won't work with most sellers - I only need it to work with one. Would buyer's agents (and you in particular) tell me to take a hike if I wanted to try this?

Rona said: "Fourth and less important: buyers and sellers who are out there buying and selling think in real numbers, not percentages. You will understand the impact of negotiation better by thinking in terms of paying $20,000 below asking instead of thinking 2% below asking."

Isn't the agents' commission set as a percentage of sale price? It seems likely that the seller will have already agreed to think about the sale in percentage terms for some aspects.

Also, if the real number that goes with a small percentage seems unreasonable, maybe it isn't the percentage which is the problem (I would suspect the starting price).

Hi, Anon,

If you were to approach me as a potential client, I would counsel you with advice similar to what I have been giving out on this blog. I help people make good decisions about buying real estate – which frequently includes advice not to buy.

My clients are interested in buying a property that suits them for as little money as possible. I can only work with about five households at a time. So I work with people who have a logical plan. Your plan to buy at 15% below market value is unrealistic. You are unlikely to succeed; I would not allow you to hire me if that is your buying plan.

I do not know what other buyer agents would do.

Hi Tim,

If you are saying that prices are way too high, I totally agree with you. It is because these numbers are so large, that thinking about them as percentages obfuscates the process.

When a buyer and seller are negotiating, they are NOT thinking about the difference it will make to the commission. [I don’t want to “price fix” commissions in print, so I am going to pretend that commissions are 8 percent. I have never seen an 8 percent commission.] At 8 percent, a seller who gets an extra $10,000 during the negotiation will pay $800 to the agent(s) involved. Which number is more important? $800 or $10,000?

Commissions are an awkward way to get paid and I don’t much like the system. I trained as a Consumer-Certified Real Estate Consultant. However, I found that there is very little demand for my services if I charge $XX an hour for what I do. Buyers prefer to have the cost built into their purchase price. I still do some consulting, but I rarely get asked.

Rona, thanks for the response. I wasn't saying that the parties involved were thinking about how a change in price would affect the commission. I was just saying that when the agent is initially chosen, the seller agrees to payment based on a percentage of the sale, and so it provides at least some precedent for viewing other aspects as percentages as well. And yes, I was saying that prices are way too high.

I always wanted to do a test. Can an agent endorse their CMA for, lets say, 3-6 months? If the price turned out to be overestimated, are they willing to return their commissions, since they are all positive on the results?

I would also set up a reward for the agent. If I want a house at 500K and he/she gets it for 480K, I could split the 20K with he/she.

As an off-topic question, Rona, don't you think that agents make too much money in house sales? While the house price/income ratio kept increasing to normal people, it didn't affect agents because their commission was tied to house price. The fixed percentage commission also played a role in housing prices in dynamic areas. Everytime the house gets sold, 5-6% of the commission is gone and the buyer needs to recoup it when he sells.

HI-I am a seller on cape cod. Could you tell me how the assessed value of a property factors in when setting a price. I can't seem to find out any info on this. Thanks.

HI-I am a seller on cape cod. Could you tell me how the assessed value of a property factors in when setting a price. I can't seem to find out any info on this. Thanks.

Hi Barbara,
The short answer is: You cannot depend on assessed values to set a sale price.

Assessed values are developed by the town or city in order to assign taxes per property for the municipal tax base. It is your assessed value multiplied by your tax rate which determines what you pay every year. They are a comparative look at your property in relation to the rest of the town.

Assessments are supposed to be accurate to the market; however, they frequently lag behind the changes. Some towns assess every three years. The evaluators are not able to see inside all the homes. During the bust in the early 90’s, I saw assessed values $100K+ higher than sale prices; in the recent run-up, I saw them $100K+ below sale price.

If you want to know what your house is worth, hire an appraiser. If you want to sell your home, hire a professional to help you. A good seller’s agent can tell you what your house is worth and create a marketing plan to help you get the most the market will bear.

I have my house on the market and am one of the one asking 2 1/2 times what we paid for in back in 2000. Yes we may be fishing without bait at this point, but since we did not purchase our next home yet, we can stay here as long as we need to. I'm starting to enjoy the comments field of the post showing report. I really think one buyer was so mad he wanted a peice of me. It is what it is. Good luck to all.

Thank you Ted, I can't agree with you more. If seller doesn't consider "true market value" why would buyer consider it? Better off both party throw number until the ends meet. This is my whole point that CMA doesn't mean anything either. While you, potential seller and me, potential buyer, are all waiting for the market to do its thing, I guess the only party who gets hurt is the agent eh?

What do the banks stand to gain with a 24 mo inventory of foreclosures, and short sales stacking up?
Fair market value is what someone can pay in this market. What is the hesitation on lowering the price? After all, when the loans dry up and the banks own empty homes, what then?
Sell em cheap and let them go. Huge inventory of reo's. weird.
Are they just slow? In denial? Waiting for the word to sell? All the CEO's are getting fired, meanwhile, CA buyers can't get a loan (yes I have perfect credit) for more than 417k, I wouldn't want one anyway, and, banks are still holding on to 2006 prices of 650k in my town for 1592 sq ft homes. HELLO?!!

It's so hard to get some sellers to understand that in this market their asking prices are simply too high. The sale of their home is such an emotional experience that they are insulted when someone actually offers what the property is worth. It's common for listing prices to be 20-25% too high, but agents 'buy the listings' by agreeing to list the properties for what the sellers think they're worth. Actually, that gives the sellers false hope and results in no shows and no offers. After the properties eventually sit around on the market for months after months, then the offers may start coming in at 25% or more less than listing price. In essence, you can blame much of the problem on the listing agents who agreed to list the properties for crazy prices in this slow housing market.

i am very annoyed. realtors and sellers get irrate with me when i offer 50% off offers. the reality is that what once went up like a rocket is coming down even faster. i cannot stress how overbloated the inventories are, how few people have the, what will soon be mandatory, 20% down and how few people now qualify for mortgages. i offered $180k cash on a house in tampa with an asking price of $300k. the agents, seller and all involved told me i was insane. $140,200 was the final selling price on auction. $0 thousand dollars less than what i was told was an insane offer.
real estate prices the WORLD over are grossly inflated. what you buy today at asking price will leave you with 50% negative equity in a years time

Update to this story:

As of May 8, 2008 this condo has not sold. It is no longer listed in the MLS.

Update, May 2008.

The seller's agent who told my clients that they were lowballing gave such great advice that he lost the listing. The condo is still unsold. A lose-lose situation all around.

Rona

First of all - lets talk about who has driven up the property values. A house worth just 80,000 a few years ago suddenly being offered at 3-400,000 thanks to realtors and appraisers working together to drive the price up. Case in point, land acreage being had for 2-5000 an acre. A realtor/investor buys it all up in what they see as a desirable area and now offers that same acreage - only a few months later - at $40,000-100,000 an acre! Sorry - seen it too many times so no use trying to deny it!!!! I look at that and so call "low ball" the offer back to - you guessed it - 2-5000 an acre. I'm for you making a little money on a property investment - but ripping people off like realtors regularly and mostly do as well as appraisals - you deserve what you get! Then you have the nerve to say - lets look at what properties are going for or recently sold for in that area - when, of course, you know that it was you who drove the price up to that much! You even have mobile homes - MOBILE HOMES I SAID - which anyone with a brain knows depreciate like a car does the split second it leaves the lot - NEVER DOES IT GO UP IN VALUE - selling for $100,000 even when it's 20-30 years old and has never been updated or taken care of - when you can get a brand new one for $50,000! The sellers of mobiles are lucky to be "given" $1000 let alone 100,000. Now to add insult to injury - you have shows like Property Virgins trying to "teach" inexperienced people how to buy. Who comes out on top with shows like that - The Realtor! Do yourself a favor - ALWAYS look at what the assessor and appraisal district have the property down for FIRST - not what the actual realtor/appraiser has it appraised at. It should be more closer to what they should realistically be asking. Yeah, some moes will say that is only for tax purposes - but it does say something about the reality of the house and the area. Look at the sale history of the house too - and the most important thing - if a realtor or appraiser owns the property - don't buy it - you'll get ripped off.

Real estate is a game. There are some good players who know strategy, and can use it to their advantage. I live in Canada where home prices havent been affected like those in the USA, however, we have still been affected to some degree, and, it is a buyer's market.

I prefer not to use a realtor when I offer to purchase, thus reducing fees, and I watch the market over a period of time, while zooming in on specific properties that I know are overpriced to begin with, and watch the listing price fall, fall and fall, partially due to a realtor listing and agreeing with their client what they think their home is worth, then I approach the original seller. It's ok to use comparables, but not just of those that have sold, but how long they have been listed, pending sales and failures with conditions, and the actual days on the market, specifically those that have gone stale after month and months on the market without any offers.

As I said, strategy can work, especially when you come in with a clearly clean offer, without a financing clause, which is rare, but can work to an advantage, especially if accompanied by a substantial deposit. Not everyone can do that of course, but you can low ball to a certain degree without this clause, especially if an offer is only subject to an Inspection condition, easily removed within seven days of satisfaction, and the quickest close possible, just long enough for lawyers to complete the deal. Financing is an easy way out for a buyer when they hold off supply financing confirmation to the 24th hour, because they found another property they like better, or just simply change their mind. It happens all the time. Low balling a certain amount can be justified without insult if a buyer does know their market and ultimately, it is the buyer who determines today, the price of the home, based on what they are willing to pay. I do believe you can move on to the next one if a seller doesnt accept your offer, with success; it's all about knowing how to play the real estate game and knowing how far you are willing to go, at what risk.