Lowball Offers in a Bear Market

Housing Bear Market Brings Out
Two Kinds of Low Ball Offers

Although they're invariably upsetting to Sellers who receive them, not all low ball offers should be summarily dismissed. Especially in a housing bear market, there really are two kinds of low ball offers.

The first kind is the stereotypical, "I'd like to steal your home in broad daylight" offer. The amount is insultingly low, there's little or no context or introduction offered by the Buyer's agent, and the financing terms are even weaker than the offer price (if they're even included).

In the case of investment properties, I've even seen offers where key information -- like the property's address -- is wrong, and the entire offer feels sloppy and incomplete. Clearly, such would-be Buyers are throwing, er, spaghetti against a wall and seeing what sticks, i.e., making hasty offers on multiple properties in the hopes of finding a truly desperate Seller.

(Another sign of such a strategy is that the Buyer has only been through the property once. Especially with single-family homes, serious Buyers typically make multiple visits to weigh pro's and con's, study the home's key features, and initiate a dialogue with the listing agent)

"Leaving the Door Ajar"

The other type of low ball offer telegraphs more sincerity and interest -- and therefore needs to be treated more carefully.

While I strongly discourage my Buyer clients from making low ball offers -- as often as not, they backfire -- clearly not everyone feels that way today. Egged on by housing headlines, or thinking they see weakness where a home has languished on the market (note to Sellers: don't let your home languish on the market), some Buyers feel compelled to start out with a very, shall we say, aggressive initial offer.

Once that's been rejected, it's almost as though the Buyer "got it out of their system" and can begin to negotiate seriously.

If the Buyer in fact is serious, they'll typically continue circling the property, making incrementally higher offers.

What happens next depends -- on the home's location, price, and condition; the presence (or not) of other suitors (a direct function of location, price, etc.); on how patient the Seller is; and on the Buyer's psychological investment and interest in the home.

Sometimes the would-be low ball Buyer raises their offer enough to entice the Seller to accept. Sometimes, they don't, and move on. However, a third possibility --and one that seems increasingly common -- is that while the low ball Buyer is dithering, a second, more motivated Buyer appears, steps through the door the first Buyer left ajar . . . and snatches the property.

In fact, I just handled one of these transactions.

Not only is the second Buyer viewed as a White Knight, but often the first Buyer isn't given a chance to match or beat the White Knight's offer ("if they were willing and able to offer more, they shouldn't have wasted my time beating around the bush").