The low-ball offer: slick maneuver or heavy blunt instrument?
The low-ball offer—an offer that's far below a home's list price and almost certainly far below its market value—lurks in the underbrush of any market, good or bad.
In a good market, the low-ball hunts for lone stragglers, homes lagging the herd because they've been crippled by a list price that's too high. In a slow market, when 90 percent of the herd is straggling and easy prey, the low-ball strikes repeatedly.
Which market are we in these days? And when is a low-ball offer not a low-ball offer, but merely an honest difference of opinion, a well-intentioned no-harm-intended offer based on a buyer's perception of value that just happens to find itself dramatically lower than the seller's? And does this fine distinction mean a hill o' beans to the seller? Finally, is there a sure-fire, neatly surgical way for an agent to pull off a low-ball offer without irretrievably alienating the seller and listing agent—and often his own buyer, when she realizes that all she's done is irretrievably alienate the seller and listing agent—without getting his hair mussed?
Are we in a low-ball market these days? You might think so. The low end is roiled by foreclosure and inundated with bank-owned homes. Banks are desperate—so I hear—and slashing prices—so they say—so the perspicacious buyer should step forward and make that low-ball offer.
So they say. The problem with what "they" say is that it's the rare reporter who's made an offer on a bank-owned home. For an industry that's taken a drubbing lately, mortgage bankers are certainly beating an orderly retreat, at least in this area. I don't see anything that looks like a white flag hoisted over their camp.
At the top end I see a market that's slowed but is still healthy enough to beat off low-ballers. Folks who own two- or three-million dollar homes didn't get those homes with no-money-down option-ARM financing, because no lender offered that financing in that price range. Folks who own two- or three-million dollar homes generally have deep pockets and don't have a pressing need to sell right now. Folks who own two- or three-million dollar homes are usually sophisticated enough to know about what their home is worth and about what their chances are of getting it.
On a People Magazine human-interest note, it's touching to discover that, considering the low-ball offer's reputation as a real hard-nose, it occasionally suffers from identity crisis. Sometimes—more than sometimes—the low-ball offer sees itself not as a gauche opportunist, but as a knight in shining armor come to the rescue of a seller in distress. Somehow the seller never sees it this way. Perhaps the seller is just being ungrateful.
Often a buyer's first offer is what might be called an unintentional or inadvertent low-ball. Buyer is simply not clear on what the home is worth and on what it will take to get it. Buyer is dipping her toe in the water rather than diving in. Buyer has read too many books on negotiating.
That's why I say, "the first offer is on me". I always "comp" the first offer, as in "complimentary", because I'm subsidizing that first offer with my time and gas money. My expectations, both of the buyer and of the results, are minimal. This time. The value of the first offer, if any, will be to inform, enlighten and harden the buyer. It will also reveal much about the buyer.
The first-time offer process may go something like this:
Multiple offers are a real test of a buyer's commitment and her grasp on reality. How well I remember the first time clients of mine went up against multiple offers. The night we met to write the offer, we knew we faced stiff competition. Despite this, my buyers felt they should keep their options open, keep something in reserve, keep their best terms off the table so they could lay down their trump card at the dramatic dénouement.
The following night we were one of five offers. The seller and his agent listened politely to my clients' cautious, inadequate offer, thanked me and sent me packing. Remember, there were five offers. Our offer came in sixth. My clients never got the chance to play the winning card at the decisive moment, because they never got that far.
But let's assume Buyer isn't competing with other buyers. Let's assume that the home Buyer wants has lingered on the market, unloved and unwanted, and that Buyer believes this gives her a decisive advantage over Seller. Buyer writes an offer that looks for how low Seller will go, an offer that probes, not delicately, for Seller's pain threshold. Buyer doesn't want to overpay. Buyer doesn't want to leave money on the table. For Buyer it's strictly business, nothing personal. Buyer knows Seller will understand.
Buyer spurs Agent into battle with this exhortation: "Not a penny more! If I can't get this house at my price, I'll just move on to the next one". And this would be true if Buyer really was a low-baller. However, the true low-baller is a rara avis, a rare bird. More likely Buyer is just drawing an arbitrary line in the sand and then trying to convince Agent and herself it's real. Because hardly anyone makes an offer on a house they don't care about. And Agent has heard Buyer's voice crack with emotion when she talks about the home. Which is why it's a big mistake for Seller to not respond—firmly—to a low-ball offer.
Now it's time for Agent to sell Buyer's offer to Seller. That's what Buyer is paying Agent good money to do although, come to think of it, Buyer hasn't paid Agent one thin dime and, at this rate, never will. Now it's up to Agent to go in and tell Seller, face to face, mano a mano, that his home isn't worth what he's asking, no, not even close. Explain. Educate. Demonstrate. Use charts, graphs, analyses. Maybe do a PowerPoint. Surely Seller will listen to reason.
After all, he wants to sell, doesn't he?
Now here's what'll really happen. Agent, if he's smart or has even an ordinary self-preservation instinct, gives Listing Agent a quick heads-up that Buyer's offer "probably" (certainly) "doesn't have the price Seller is looking for". Why tip his hand? Because Agent knows better than to compound the sin of presenting a low-ball offer that makes Listing Agent look bad Seller to Listing Agent: "Is this the best offer you can get me?" by blindsiding her with a low-ball offer Seller to Listing Agent: "You dragged me down here to hear this?". Agent will try to hone the rough edges off the low-ball offer by implying that it has the offer's version of a great personality: quick close, no or short contingencies, qualified buyers, neat handwriting, anything that gives it bona fides.
Agent will go into Listing Agent's conference room looking cool, calm and collected, or as cool, calm and collected as any deer caught in the headlights. "The condemned man ate a hearty breakfast." Agent will present Buyer's offer professionally and concisely. Agent will get in and out quickly, because he knows that over the next few minutes he won't be making any new friends, no matter how much he babbles on or tries to bond. But neither will Agent go at Seller hammer and tongs, because confrontation ensures that communication is dead on arrival. Nor will Agent slink in, head down, eyes averted, because to appear apologetic is to concede that he should be apologetic. Agent will mention that Buyer searched her soul long and hard pondering the home's value and failed to arrive at the price Seller put on his home. Agent will never tell Seller he blew the price, nor will Agent shove his supporting documentation (if any) across the table, because to do so would be to say "Your baby is ugly, and I've got proof".
Of course, none of this careful professionalism and delicate surgical precision will do Agent or Buyer any good except perhaps to make Agent incrementally less persona non grata to Listing Agent for the remainder of their respective careers. Because as soon as Seller sees Buyer's price—and it'll be the first thing he sees—a red mist will descend and Seller won't hear another word Agent says. Agent could sing all seven verses of La Marseillaise while dancing the Argentine tango with Listing Agent and Seller wouldn't notice. Agent could take off his shoe and bang it on the table a la Khrushchev at the U.N. and it couldn't make things worse.
Because Seller won't buy what Buyer is selling. Ever. Or at least until the market wears him down. If it ever does. If he doesn't sell to someone else first. Someone who looks and sounds a whole lot better than Buyer.
Because no one likes hearing that their baby is ugly.