What is the norm for making low ball offers on homes? I have been getting this question more and more every day with my customers. I answered that question a long time ago about Low Ball offers on foreclosed properties. That is current my number 1 post on this blog and has almost 60 comments on it. Although I wrote this post almost 2 years ago, the points are still very valid. Here is a recap and some additional thoughts:
- What you think the value of the house is does not matter to the bank. You and I can both believe that this home is worth $40k, but if it is priced at $80k, it is virtually impossible to get the bank to take a 50% discount on the price. Most often the bank is basing their prices on the advice of their real estate agent and/or other 3rd party agents that they contract with to create a Broker Price Opinion (BPOs). And sometimes, the bank is just plain wrong, but you and I are rarely going to get them off their stubborn number.
- Making low ball offers really don’t do much for you. In fact, there may be some validity to the theory that a low ball offer may hurt your future offers on this house. I have seen the asset managers (humans) get their back arched and almost feel insulted when you send them a low-ball offer. There is a great chance that they will simply ignore any future offers from you on this AND ANY OTHER HOUSE. They are under no obligation to sell you anything. Tread lightly.
- In this market, within the first 5 days, in my experience, you will need to make offers at 98%-100% (or higher) to get a property. I do see banks simply miss the mark on what they price a home at. They price a $40k house at $100k. I am unsure if it is a mistake or some tax/accounting trick for their auditors. Nevertheless, submitting a 80% of list offer day 1 is a waste of energy.
- Now don’t get me wrong, making low ball offers can be done (I have made them) and can get accepted (I have gotten them accepted), but they have to be on homes that have been on the market a while and no one is showing it or making offers recently. HUD properties are good for this, especially because they tend to keep their list prices abnormally high for too long.
- Time is often your best weapon. If you don’t get the price you want, wait. My customers have got accepted offers because we simply resubmitted our offer every 30 days until they saw that we were the only game in town.
- Low ball offers on short sales may have more chance simply because if you can justify your offer based on other sales in the area, the listing agent can take that information and send it onto the bank to justify the offer. Remember, though, you need to base your offer on comps, not just desire.
- Retail sellers are very pinched right now. Most are selling at huge discounts from just a couple of years ago. I believe many are very stressed out and may just snap if you send them an offer at 80% of list. While again their property may be high compared to the market, the retail seller may not be able to get down to market (because they have no equity left) or they just haven’t accepted the fact that their house is worth 20-40% less than just a couple of years ago. It will be hard for you to convince them.
Lastly, rely on the experience of your real estate agent to help you through the offer. If you aren’t getting good guidance from him/her or they don’t work with many foreclosures or short sale, find another agent!