For some home sellers, it’s been a long year without a home sale. Armed with this knowledge, many buyers out there may be fishing for a steal.
Sellers who have had their homes on the market a long time may be eager to move on. Financial hardships will drive other sellers to desperation. Additional sellers will choose to let their listings expire and try again next year. They, too, may be willing to make a deal in order to sell their properties.
The key to making an aggressive low-ball offer on a home is to start by finding properties that have languished on the market for a long time. The softer the market, the more likely the strategy will work. But buyers can get tripped up. Here are six mistakes people commonly make when making a low-ball offer.
1. Not understanding the market
Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is. For instance, if it’s a buyers market (ask your agent if this applies) make an aggressive offer, after considering the time the property has been on the market and neighborhood comparables. But in other markets, a low offer won’t get you far. In general, when inventories are down, interest rates are historically low, and there is a pretty large appetite for purchase because of those factors. Sellers will often hold closer to their asking prices.
2. Not picking the right real-estate agent
Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt negotiations. And sometimes agents are too reluctant to make aggressive offers, because they may be more focused on completing a deal and collecting their commission, rather than making the best deal. In addition to that, their negotiation skills might not be up to par. If it’s an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn’t going to get you anywhere. But on a property that has been overlooked by the market and doesn’t have multiple bidders, it often doesn’t hurt to go in low.
3. Not backing up your price
There’s an art to presenting an offer that’s substantially less than the asking price. A low offer could start negotiations off on the wrong foot if you’re not careful. The key is for you or your agent to explain the offer when presented. Sellers want to know why you’re coming in so low. Include recent (comparable sales in the area) or issues with the property that validate why your offer is so low. Don’t be too harsh with your criticism, however — that can also work against you.
4. Not knowing what you’re willing to pay
Buyers these days have a strong motivation to get the best possible price on a property, especially if they believe that home values will fall even more. Their biggest worry is that people will say they overpaid. But sellers have limits, too, most often dictated by the amount of home equity they have. Before negotiations begin, it’s important for a buyer to decide what his walk-away price is. At some price point, the deal is no longer worth doing, no matter how great the property. While a buyer should know how high she is willing to go, don’t put limits in the first offer. You lose credibility if you say it’s your “best and final” offer, but then are willing to come up with a few thousand dollars more in order to buy the property.
5. Not making a clean and easy offer
When you make a low bid, you want other elements of the offer to be attractive to the seller. Also remember that deals that can close quickly may often have appeal. Make sure there are as few contingencies as possible. It’s best if buyers don’t have a home to sell in order to buy the one they’re bidding on. Also, have your financials in order from the start. Loan qualification is more difficult these days, so it’s important to have a lender pre-approval letter.
6. Assuming cash will always get you the best deal
Cash is king, but in the end, a seller often wants the most money for his home — regardless of whether the buyer needs a mortgage or not. So don’t think making an all-cash bid will automatically mean an accepted offer.
That said, if the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage. Banks often don’t want to deal with mortgage-related delays.
As always, having a professional to help you navigate the ins and outs of buying a home can help save you thousands of dollars and lots of headaches. If you need help selecting a professional to help you, please let us know.
—based on an article written by Amy Hoak