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LowballSilicon 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 a lowball one?

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.

Most of all, you need to run the comps and pinpoint the pricing.  Often the list price is LOWER than market value and in that case, the seller is probably expecting overbids, particularly if it’s a new listing with just a few days on the market. In other cases (but rarely), the seller may be way high just to “test the market“.  It’s also possible that the Santa Clara County area home is priced exactly at what the market can bear.  So you and your agent absolutely must crunch the numbers to establish the probable buyer’s value or probable market value for that particular piece of San Jose area real estate.

If you do submit a lowball offer, realize the risk that the seller will feel insulted or suspect that the offer is not serious and won’t be amenable to negotiation. When sellers choose to negotiate with a lowball, what I see most often is that a low initial offer results in a very high counter offer (E.G., house is listed for $1 million, offer comes in at $800,000 and seller counters to $995,000, maybe even over list price if they are mostly interested in making a point). Submitting a lowball offer on a home you REALLY want is not recommended as the net result will likely not be favorable to your own interests – especially in today’s hot market!

Good negotiation is to be expected if the market softens at all, but if done poorly or overly aggressively, it can really backfire! So crunch the numbers, be sensitive to the local situation, and put a good foot forward.