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.

Most of all, you need to run the comps and pinpoint the pricing.  On brand new listings, 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.

What are the sellers looking for in an acceptable contract?

Try to learn, through your agent, what the sellers’ motivation may be. Sometimes what they want is not primarily price, though of course that’s always important. Sometimes they may prioritize something like:

  • timing (maybe a quick escrow with a rent back so that they can buy the next home without moving twice)
  • an easier exit (buyers can offer to have the seller leave debris – in some cases, that brings so much peace of mind that the sellers will be more forgiving of the price
  • or any other particular concern that won’t be known unless the buyers’ agent asks the listing agent about any special considerations that could sweeten the deal

What is likely to happen if you submit a lowball bid?

If you do submit a an offer package with a price that’s not close to list price (say, within 5%), realize the risk is there that the seller may feel insulted or suspect that the offer is not serious and won’t be amenable to negotiation.

When sellers do 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.

Related reading to What makes an offer lowball:

Receiving an offer (on popehandy.com)

Writing an offer (this site)