With interest rates reaching historical lows and more properties than ever becoming available in the real estate market, many people are shopping around to find out the best places to spend their money on investments. Often times, investors find one or two properties with which they fall in love, yet the asking price is a little too high for them to invest. One thing that many people consider is suggesting an offer to the seller that is much lower than the asking price. However, this could be a very bad move.
The current housing crisis and recession has created a buyer’s market. This means that many buyers assume that they will be able to reduce that asking price on a property to something that they want to pay, which is generally extremely low. This real estate investment strategy is known as lowballing and can often lead to disaster.
In actuality, the great number of properties available on the market makes selling a lengthy process, if the property even sells at all. The asking prices for most properties are decreasing each month in an attempt to catch the attention of more prospective buyers. Therefore, the current asking price on most properties are already much lower than average, especially if you compare with the housing prices from just a few years in the past.
If a prospective homebuyer makes an offer that is extremely low, especially on a property with an already reduced asking price, they risk offending the individual selling the property. This will add tension to the relationship between buyer and seller, resulting in possible refusal of all current and future offers.
The best approach is knowing the average selling price of the other properties in the area and conducting an adequate amount of research in order to present the seller with an offer he or she cannot refuse.
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Its true, lowballing is a risky real estate investment strategy. I however found a way to make it successful. Late last year I was shopping for a property for several months. I came across a property that was perfect but a little expensive. I looked around for a couple of properties that were the same price I was prepared to pay (although in not as good condition).
I put the argument to the agent that there were two other properties that were around the price I was prepared to pay and listed similarities ,eg four bedrooms, double carport etc.
The agent was convinced and put it to the owners that the price range should drop. (this was after the original price had already dropped).
I bought the house and in the last six months the area has increased significantly. (as I had seen coming).
Because I gave the agent a reasonable verbal comparison he had something to take to the owners.
That was the key.
That is an interesting term, lowballing, although the computer would prefer to hyphenate it. If one is going to make property investments it is helpful to be familiar with the terms.
I could certainly see that lowballing might not be the best option unless it is done in a very diplomatic way such as David has done.
That’s a good point about lowballing – that it might be offending the seller. Sometimes we just always want something for nothing or a lot less – without regard to the seller – who also wants a good deal.
Also, if that type of offer is made not long after the property is put on the market – they are more than likely not ready to even consider a lower offer – and will tell you what you can do with your offer.
I agree, this strategy can backfire if you really want the property and if you are just “lowballing” to safe some more money.
If you do have a reasonable argument why it should be lower (eg other offers in the area, needs more work done etc) it can work quite well.
But I am a friend of win-win situations, which puts a limit to how low I would go with any offers. If I can’t afford it I can offer as much as I can with exactly this argument and if the owner doesn’t take it that’s fair enough. But it wouldn’t stop me to let them know if I really loved the property and thought its just out of reach, because you never know