A good strategy is to set your cost and objectives ahead of time to understand what you should offer and when to decline an offer. As a result, you’ll have easier negotiations and a successful property sale.
If you’re new to the property market, here are some tips on making a fruitful low offer that both you and the buyer will embrace.
Lowballing
A low ball offer usually falls below the property’s fair value at market rates. In addition, it is considerably less than the dealer’s listing price in the property market.
For instance, if a property is worth $250,000 at market rates, a low ball offer could be about $200,000 for the same property.
Buyers may sometimes use lowballing as a negotiation strategy to arrive at a reasonable buying price. However, an offer shouldn’t be too low that it displeases the seller. Learn all you need to know about the negotiation process by clicking here.
Is Lowballing a Good Idea?
A low ball offer is a good idea if the property has been in the market for a long time and there are no counteroffers. Otherwise, it may work against you as a seller.
First, it breaks the rule of a good offer. Genuine sellers base their prices on recent home listings or similar houses within the neighborhood. So, if you accept low ball offers without comparing other home prices, it portrays you as having a substandard product in the market.
A low ball offer may also send the wrong message to the buyers about the property’s value. Some buyers may think you don’t know your property’s value or market price and merely trying to exercise your ignorance.
None of the above outcomes is favorable, so you’d instead make a counteroffer with terms and conditions as a seller. It would make the buyers know that your property is valuable and worth a reasonable selling price.
Justifiable Low Offers
There is a massive difference between a low offer and a low ball offer. Whereas a low ball offer falls below the fair property value, a justifiable low offer is essentially a low-end price within the property’s fair market value.
For instance, if you offer $280,000 for a property whose listing price is $299,000, you are at the low-end margin of the fair market value. Prices of houses within your community could range between $280,000-$299,000. Therefore, both you and the seller have reasonably low offers for the property.
If you based your offer on some recent actual sales within the locality, the seller wouldn’t feel offended. Falling on the lower end of the fair market price is acceptable as long as you have sufficient time for negotiations.
When Is a Low Offer Justifiable?
A home’s low-end price is justifiable if it is not a low ball offer. It is a common practice that knowledgeable buyers employ to create room for negotiation.
You may justify a low offer based on the following reasons:
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The mansion is in a deplorable state and needs fixing.
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The apartment building is on the market for quite some time due to failed sales efforts.
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The property has a bad reputation from past incidences, such as fire outbreaks.
Negotiating Credits In Escrow
In a weak real estate market where buyers are either few or selective, merely putting a price is not enough to attract buyers. Sometimes, you may give buyers funding through seller-paid financial agreements. Such agreements help you close the deal quickly, without many obstacles.
Below are two main types of vendor commitments:
Non-recurring Closing Costs
These one-off charges cater to property inspections, insurance, titles, credit reports, and property appraisals. Some sellers will tell you that they’ll settle all these costs on your behalf to enhance the speedy closing of the deal. Learn more about what goes into closing costs by clicking here.
If you have insufficient cash in your escrow account to pay for the closing costs, then you’d instead settle for the seller’s funding.
Corrective Work Credit
During negotiations, neither you nor the seller understands the cost of corrective repairs required on the property. However, once you submit your offer, the purchasing contract allows you more room for negotiations on remedial work after inspection.
If home inspectors find no need for repairs, you do not need to worry. On the other hand, if the property requires corrective works, you may negotiate for corrective work credit with the seller.
Low Offers - Make a Choice
As a prospective landlord, choosing to accept low offers is not something you should overlook because it could spell the difference between getting or not getting the ideal home.
If you’re undecided, remember this: you can’t put such a cheap bid that upsets the seller.
So, before you accept or decline an offer, consider which risk is more significant. If you can take the outcome, go ahead and make a low offer. But if you want a mansion, be a little more reasonable and make a good offer.
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