Making Low Ball Home Offers

By Steve Gillman - 2005

Your low ball home offers are not likely to be accepted - that's the bad news. But the good news is that they may be a good idea anyhow. Here's why.

Real estate generally sells for a bit less than the asking price, but a "low ball" offer on a home is one that's really low. If most of the homes in your area sell for around three percent less than the asking price, for example, and you make an offer for 15% less, it will be considered a low ball offer, and it will generally be frowned on by the real estate agent. The latter is irrelevant - if you have a good reason to do so, just make your offer anyhow.

But what is a good reason to make a low offer on a house? Well, it may be necessary. Perhaps you can only borrow a certain amount, and so you need a lower price. Maybe you need lower payments so you can get cash flow from a rental house you want to buy. Or you just want to buy low and sell for a profit after a few fixes.

There are many personal or investment reasons, all revolving around the goal of paying less. And you only get a deal if you ask - but will it work? How often will a seller accept that low price? Not often at all, but that's okay as you'll see.

I should add that if you need a home right now, don't go around offering 20% less than the asking prices on every home you look at. You'll waste time trying to find that one-in-a-hundred sellers who will agree. But if you're an investor and it takes two months and a hundred offers to get a deal you can make $20,000 profit on, why not? Work on your technique and you might even get one-in-thirty to say yes to your offers. Though this may sound like bad odds, if you made thirty offers per month you would be making 12 profitable deals per year.

Low Ball Offers - How to Make Them

One important point to make about low ball offers; You don't need to ever have one accepted to make money, because a seller will often make a counter-offer in response. Suppose he is asking, $230,000, for example, and you offer $185,000. He might come back with $200,000, and that price may suit your purposes.

In other words, one of the primary functions of a low offer is to lower expectations and start negotiations. Years ago when I was trying to sell my car, the first offer I had was for half of my price. I said no, but it got me doubting my estimate of value, and I was ready to accept almost any offer higher than that. This is how the process works to lower expectations.

Some Tips

Write a lot of offers. Investors have been known to make offers without even looking at the houses to save time, writing up their offers at 25% less than the asking price and including an inspection clause so they can back out of the deal if the home has any serious problems. Most offers made this way are rejected, but the idea is to make the process efficient so that one-in-a-hundred can be more quickly located.

Uncertainty is an opportunity, and does two things. First it scares away buyers. Second, it scares sellers into accepting less than they're asking. An informed investor uses both of these effects.

I recently saw a fixer upper with a price of $50,000 get an offer for $5,000, for example. It was worth more than that, but the house was so rough that the repair costs were very difficult to project. Naturally the seller said no, but now he was probably less certain about the price he was asking.

Now, an investor with the skills and knowledge might know it would take $20,000 to fix up that house. He may also know that he can sell it for $80,000. He might ask the seller what other offers he has had. The seller would hesitate to say, but the question would remind him of the $5,000 offer. Then when the investor offers $27,000 the seller might come back at $33,000. That would leave a good potential profit for the buyer.

Uncertainty is a given when it comes to unique properties. Donald Trump was able to buy a 25 million dollar home for 5 million, and Richard Branson bought a 3 million pound Caribbean island for just 180,000 pounds because of this. The value of islands and high-priced estates is always uncertain. Go low when the property value is not easily determined.

Some uncertainty is almost a requirement, or a seller would almost never accept 20% less on a home. So choose the right homes to make these offers on if you want to have more low ball offers accepted. Which are the right homes? They include those that are unique, have problems, have been on the market a long time, have very motivated sellers, or have just been listed very recently.

Gently tell sellers why they should accept your low offers, perhaps with a list of the problems you see, especially those that the sellers may not have noticed. Do it on paper and be nice. Don't confront sellers with their home's flaws or you'll get an argument rather than a negotiation.. Apart from the price, give them anything they want if it won't cost you much. This might include a fast closing, time to move, or a higher interest rate if seller financing is involved.

Your goal is to get some - or maybe just one - of your low ball home offers accepted. To do this, choose the right homes to begin with, see the first offer as a negotiating ploy, and be nice. Repeat until you have a deal that suit you.

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