Lowball offers are indicative of several things –
1) Buyers’ lack of confidence in the market
2) Buyer’s attempts to price in anticipated declines in the market
3) A possible indication that sellers’ have unrealistic price expectations.
4) Fear – on the part of buyers (buying something that will be worth less tomorrow) and on the part of the sellers (fear that they won’t be able to pay off the mortgage with the proceeds from the sale).
Noah Rosenblatt at Urban Digs in New York City published an outstanding piece yesterday; this is part of the closing (read the whole thing – his words ring true for the Charlottesville real estate market as well as any other that is struggling to find a bottom/equilibrium/stability).
TRD: “Lowballing or not, buyers’ stubborn refusal to pay listing prices appears to be having an impact on the market. “It’s really insulting,” Gomes said. “But at the same time, it’s all about creating a dialogue. Anytime you have someone who’s interested, you do the best you can to play nice and negotiate the deal.”
MY COMMENT: Buyers are being prudent. Sellers are being stubborn. All until the price is right! Buyers make the market and determine what the property is worth on the open market based on their confidence in the asset, their financial position, how well the product meets their needs, and a solid knowledge of where the market currently is and how to value the property in question. If bids are low, it is because that is where buyers are confident in purchasing the asset. Without buyers, there is no price discovery. As long as jobs are not safe, buyers feel less wealthy, buyers are not confident with the asset, and the media enhances all these emotions, buyers will continue to have an impact on this market! In the early stages of a down cycle & especially when a market becomes illiquid (bids dry up), it is typically the asset holder that is in denial over the ‘current value’ of their asset.
Update 12 October 2012: The Wall Street Journal published a useful story yesterday on “How to Make a Lowball Offer.”
A lowball offer is an indication that in a scary market someone likes your home to stick their neck out and attempt to buy it.
As far as the buyers fear that what they’re buying will be worse less tomorrow, that seems not so much fear as reality. Whatever you buy will likely be worth less in the very short term. The question is what will it be worth when you’re likely to sell it?
You’re absolutely right, Julie.
Whatever a ready, willing and able buyer will pay = the market value … what one paid for the house, what a house cost to build, what one wants/needs to make in order to pay off debt are wholly irrelevant with regards to market value.
As I tell my clients – if we get an offer from a good buyer, we need to do whatever we can to work the offer to its fullest potential.
Thanks for sharing this post. I read it in it’s entirety and found it to be true – whether it was NYC or Main Street, USA. Our job in representing Sellers is to (help them) establish a price that will bring the “best offer obtainable from the best buyer available in the current market.” Ideally that will happen in a reasonable marketing time. If not, the price must be corrected.
As long time real estate trainer Joe Klock says, “No house in the history of time has ever sold for a penny more than it was worth to that given Buyer.” Sellers in todays market may not like that but it is true.
I guess the question for sellers needs to be “did you want a “Just Listed” sign in your yard or a “Just Sold” sign?”
Best wishes in 2009. Congrats on all the success with the blog. Keep up the great efforts.
Thank you for stopping by. It’s a hard reality (and it’s likely to get harder for some sellers and builders) and I have yet to meet someone who is happy about where we are. We don’t set prices; we guide buyers and sellers to make intelligent decisions. Sometimes the best decision is, “don’t sell.”
Denial is not a river in Africa it is a plague that has overcome the real estate markets here in S.W. Florida. As terminal as this malady has been for sellers it has infected some so-called real estate expert here in a way that has made them very economical with the truth.
As a broker it shouldn’t matter if the market moves up or down as long as the assets move. But trying to energize the market with half truth happy talk is a discredit to the profession and calls into question the veracity the offending Realtors. A case in point is a local radio talk show that deals with the real estate market. On this show they speak constantly about how sales have increased. In truth it is not an increase in real arms length transactions that they are using as an indicator by rather the phenomenal number of bank foreclosures that are being recorded as title transfers. Lee county Florida is the foreclosure capital of the universe and the number of properties on the market is unprecedented. But as bad as the huge number of properties that are listed for sale may be if you were to include the number of people that want or need to sell their property but have given up the numbers would be staggering.
I suspect that this is not unique to S.W. Florida and that markets around the country suffer from the same malady. Some have estimated that the number of surplus homes in this country is between 10 and 20 million, depending how you define surplus. Building a floor in a market with such an imbalance will be the real challenge for Realtors and governments alike.
I couldn’t resist responding to J Veatch. I wrote a blog post recently on all the “happy talk” from local managing brokers and how they’d have better served their agents if they’d been honest. It’s hard to help someone through a downturn if you never admit there is one! Never mind what you’ve done to your credibility!
To a large part, denial is in full swing in the SE Florida market too, and it makes me, a Realtor, furious. Funny: it happens in some pockets, but not in others directly adjacent and comparable. Also interesting: the overpriced listings, those on the market for 14 months with three different MLS numbers, always come from the same small group of listing agents.
Who’s dreaming here: the sellers who think there homes are just so much better, or the listing agents who don’t have the backbone to resist grossly overpriced listings?
No wonder markets are standing still, and buyers won’t act. They have plenty of good reason to wait.
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As someone new to the market, would you mind educating me on what type of offer is considered ‘lowball’? Is 10% below asking price lowball, 20%, etc? What is considered a reasonable offer vs a lowball offer?
The short answer is “it depends” – and that number is set by the market, what the buyer is willing and able to pay, what the sellers’ expectations are … some would consider 10%-20% down as lowball, and some would consider 25%-30% lowball.
Basically, my advice to buyers is to not be as concerned about offending the seller – focus on a reasonable offer, based on the market and the buyers’ intent.
My advice to sellers is to reasonably consider any and all offers.
Low Ball? Consider the buyers who in 2006 thought they were low balling at 20% under the asking price. Where are they now? The real problem is nothing has a price, not oil not gold, or any commodity. The big 3 auto makers and large banks are hemorrhaging and no one has invented the tunicate to stop the bleeding. Who’s going to buy a house that’s going to be worth 20% lees next year? More to the point who’s going to finance such a purchase?
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