Lowball Offers: Definition, Accompanying and Rebuttal Letters
A worthwhile article to read can be found posted in the NY Times, via Yahoo Finance. The name of the article is ‘Negotiating for a house, start with a ‘Dear Seller.’
It provides a ‘Dear Seller’ letter to accompany your lowball offer. The letter is essentially an attempt at explaining the lowball offer. In my opinion, while perhaps effective, this letter can be seen as insulting to the seller, but perhaps not nearly as insulting as a straight-lowball offer, with no explanation. In this same letter, author – Ron Lieber – provides a lowball offer and lowball rebuttal letter.
Several things to consider: First, what constitutes a lowball offer? Is there a textbook, or market definition? Any search for a real definition is fruitless. In my opinion, the term is subjective in the first place.
When an offer is defined as a ‘lowball’ you must consider four factors:
- The initial list price,
- It’s current price, and #1 and #2’s relation to
- Fair Market Value
- Are we in a seller’s market, buyer’s market, or a ‘transitional’ market from one to the other.
If we are in a seller’s market (e.g. 2001-2005, in most places) then in most cases, an offer of 5% or lower would have been considered a lowball. If we are in a buyer’s market (2005 – current, in most places) then it may not be considered a lowball offer until it is 10% below list price or more.
If an offer comes in 15 percent off the initial list price, but – with the help of your professional realtor – you both determine that the home is priced 15 percent higher than it should be in the first place (based upon a CMA which determines Fair Market Value), then is it really a ‘lowball offer’? Well, yes. The seller’s asking price is high, but the offer does come in significantly lower than said asking price. Essentially, it should be viewed from the perspective of the current asking price.
I would suggest that if you write an accompanying letter with a lowball offer, specify that you have done a market analysis of the property and you have determined that the property you are making an offer on is priced high, or fairly priced. Then state the reason(s) for the lowball offer. Example: Aside from the market being tough for sellers, we have determined through a CMA that your home is overpriced by 15% in the first place. This being said, I would also attach a copy of the CMA (comparative market analysis) so your lowball reasoning can be backed up. The numbers don’t lie.
If your lowball is offered on a home that is priced at fair market value, then your battle will be uphill even more so. You will have to determine the sellers motivation, and probably offer a few other incentives in the process; a quick-close, total flexibility on the closing date, cash, offer to pay for movers, or whatever creative means you and your realtor can come up with.
The point: thow the seller a bone so they do not feel as though it is a total loss.
Seller’s: read the rebuttal letter carefully, and strategize with your realtor the proper time to make your stand, or to negotiate the lowball offer up to a price point you are comfortable with. Remember, the seller did pick your home out of the litter!
The days on market times for Minneapolis, Edina, and the surrounding areas can be found and analyzed at the Minneapolis Area Association of Realtors (MAAR). Having a command of this market data from the perspective of the seller or the buyer is very important, but as always, I suggest having your professional realtor help you correctly interpret the data, especially with regard to your specific neighborhood and home.
Remember: If you think working with a professional is expensive…try working with an amateur.
Comments
Leave a Reply
You must be logged in to post a comment.