Friday, May 14, 2010

Low-balling can get you black-balled

The decline in property prices in the last few years has given rise to the unpopular practice of low-balling - offering a price way below the list price in hopes the seller will just take it. When it works, it's great for the buyer but painful for the seller. Unfortunately, low-ball offers are often seen as offensive to sellers and the agents who write them can end up in the dog house.

I had two recent listings that received low-ball offers, as much as 40% off the list price. The homes were both in excellent condition, priced well, and marketed appropriately. The mindset from the buyers and the agents seems to be "let's see if we can get a steal". For the agents, I've politely told them to do better research on values and "get real". If you're a buyer's agent coming in with these ridiculous offers, be careful, you may get a bad reputation in the local market. If that happens, you're unlikely to ever get acceptance.

I understand these agents are willing to write these offers because prices dropped in past years. However, now prices are moving up - at least in Silicon Valley. Everything is moving up, especially the low-end. Multiple offers are common, not rare. Overbids are back in force. Inventory in some areas is so low that 10, 20, 30, or more buyers will go after a home.

If a buyer low-balls a home and the seller declines the offer, that buyer has little chance of coming back and winning. Why? The seller has lost all faith in the buyer. They know that buyer will nit-pick every disclosure to squeeze the seller a little more. Seller's don't want that. My advice for buyers is, be realistic and don't go for the "steal".

For the buyers I represent, I always tell them to be realistic. Don't go too low and don't go too high. We'll work on getting a reasonable deal where everyone wins. When that happens, the clients and agents walk away from the transaction feeling good.

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