When it comes to purchasing property we all want to pay as little as we can for the best property we can find!  It’s human nature and it makes sense!  Before you throw in that low ball offer though, here’s a few things to consider.

It’s important to firstly discuss asking prices and to recognise what the asking price of a property actually means.  The asking price or listing price of a property is merely a number (or range or statement) decided upon by the agent and/or the seller indicating what they want for the property (or not indicating it!).  It doesn’t necessarily reflect the market value of the property.  Sometimes properties are listed too high, other times, too low.  So when it comes to putting in a ‘low ball’ offer, are we are referring to the offer price in comparison to the listing price or in comparison to the estimated market value?

For our purposes, I’m going to call it a ‘low ball’ offer when it’s low relative to the asking price (since even if it’s not a realistic price, it’s the price the seller is wanting).  You see, when you are negotiating with the seller/seller’s agent, there’s no great benefit in telling them their price is unrealistic!  You are only likely to get them offside, so you really need to tread with caution.

Market Circumstances – if you are trying to buy in a buoyant and competitive market then putting in low ball offers is far less likely to succeed that where you are in a buyer’s market.  You may find you simply keep missing out. Certainly in a busy market in Queensland we see the majority of sale properties receiving multiple offers where you are competing directly against others for the property.

Property Circumstances – how long the property has been on the market will be a determining factor in how receptive the seller will be to lower offers.  If the property is new to market then it’s most likely they are not going to give it away for a steal that early in their campaign.  If the property has been on the market then they may begin to consider offers that fall below their initial expectations.   Likewise, if the property is in a poor state of repair then the owner may be willing to consider any offers given to them.

Seller’s circumstances – Owners who have an urgency around their situation and need to sell are going to be more receptive to a low offer than those who have no urgency to sell.  Another circumstance may be that the seller requires longer settlement terms or some other condition.  It is beneficial to understand the seller’s motivations and requirements so that you can frame your offer to meet these requirements where possible. For some sellers, meeting other settlement requirements may be of greater importance to them that more money.

Getting a great deal – The big benefit, of course, to putting in low ball offers is that you may actually snag yourself a great deal!  If you are in no hurry and don’t mind waiting for a bargain (which may or may not eventuate) then why not throw in a few low ball offers?  For some investors it’s about throwing as much mud at the wall as they can and hoping something sticks!

Cons – Putting in low ball offers, however, can have drawbacks.  Sometimes agents and sellers take it personally – it’s a bit like telling them their baby is ugly…!  It’s weird, but it happens and you can end up getting the seller and agent offside.  It can also make them think you are not a serious buyer and not worth considering or involving in any negotiations so you may be closed out of a deal.

How to frame a low ball offer – Putting in a low ball offer can be a delicate operation and as with all negotiations, you may need to adjust your approach based on the individual seller/agent you are working with. I have a few tips related to framing your offer:

  • Acknowledge that your offer is not a the level they are seeking – this sets up that the offer is going to be low so you’re not shocking anyone!
  • Don’t give them an itemised list or rundown of everything that you think is wrong with the property and why you think it’s only worth the amount you are offering – this just annoys people and encourages disagreement with you.
  • Make the reasoning around your low offer more about you than about them – it’s harder for them to argue your circumstances because you are the expert there.
  • Make a statement that reminds them that you are expecting them to discuss the offer with the seller – sometimes agents will say something along the lines of ‘No, the seller isn’t going to accept that’.  It’s important that you are not negotiating with the agent but that seller.  .
  • Keep it friendly and lighthearted – this just helps everything and applies to all situations!

So for example (note, this is the sort of thing you could say to the agent, whilst submitting your written offer also):

Ms Agent, I really appreciate you showing me through the property and understand that the seller is looking for offers over $499k.  I’d like to put forward an offer that isn’t quite at their asking price, but it’s the level where I see value in the property within my budget.  My offer is: $465k.  I can be quite flexible with the settlement period as I understand that they are looking for a longer settlement.  I’d appreciate if you could get back to me once you’ve had a chance to chat to the seller.  I am in a position to sign a contract on this today.

So there you go!  Good luck with making offers!