What makes an offer lowball?

Lowball offer - baseball with the word LOWBALL imposed over it - what makes an offer lowball?Silicon Valley real estate offers few simple answers but many recurring questions. One of them is whether or not you should write a “lowball offer“. So the first question is this: what makes an offer lowball?

What makes an offer lowball?

In general, contracts with prices more than 10% lower than list price will be considered low at best, and insulting at worst, but there are many nuances, and this may not always be the case.

  • What is typical for the area? If most properties are being sold at 10% lower than list price, then 11% or 12% won’t be viewed too dimly if the home has been on the market for a while.
  • How long has this piece of real estate been listed for sale? What might seem low in the first week might look OK after 3 weeks.

What’s the immediate market climate like there?

What makes an offer lowball is above all related to what is happening in that precise micro market. It’s entirely relative to how the market in that area (not the county, not the state, but that particular area) is selling.

If houses in one area of San Jose are selling within plus or minus 1% of list price and you come in 5% under, the seller may feel that your offer was not in good faith, that the offer is insulting, or you are not a serious buyer who takes the opportunity to buy seriously.

Do You Need a Buyer’s Agent? Or Should You Find a Home, Then Use the Listing Agent?

curvy-roadA few years back, I took a client of mine to see about a half dozen homes in San Jose (Cambrian and Blossom Valley areas) and Campbell; all of them happened to be Open Houses situations filled with unrepresented buyers (people who did not have a buyer’s agent). We saw an incredible range of marketing styles on the part of the open house host. Some agents were so “sleepy” that they didn’t get up to greet us. Others were orchestrating traffic of such high levels that we felt like it was some sort of over-packed party. It was so busy that you could hardly even pay attention to the house.

In that last example, with the frantic levels of visitors to the property, the listing agents had grossly under-priced the house to attract attention. It did – there was virtually no place to park on the street!

Why would the Realtors under price a home by a very large amount? Here are a few reasons why they might:

  • traffic – the agent can bring a lot of people through the house (granted, many cannot afford what it’s actually worth)
  • that traffic can provide great leads to the agents for future buyers and sellers – the spin is “look how differently I market the home”
  • get a ridiculous number of offers on the home – with more offers, agents hope to get massive overbidding and sell at a premium (some of them, of course, will be lowball offers as they will come in at or close to list price, which is far below market value)

By creating an extraordinarily chaotic environment, the listing agents hope to motivate serious buyers so that they feel compelled to write their best offer. But if it’s under-priced by 25% or more, how many of those buyers will be able to compete or really understand the game at hand to write a viable offer on the home?

Those browsing Silicon Valley real estate & visiting open homes may not be armed with a good agent. In a scenario like the one I described above, hapless consumers may find themselves with an aggressive listing agent who’s (understandably) anxious to claim more clients. My client and I overheard a consumer speak with an agent and tippy toe around the subject of whether or not he had a Realtor. “You’re working with me, now!” exclaimed the hungry agent. It felt downright predatory.

Should the buyer work with that agent to write an offer on the home, or work with a buyer’s agent? Would you work with any agent who happened to have the listing or who held the home open? Would you feel like you and your best interests would be represented?