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.”