How Do You Make a Low Ball Offer?

Could the Canadian housing market be in store for the return of the low-ball offer? While this buying strategy became all but extinct, given the heated housing market in the last couple of years, rising interest rates have caused many markets to cool and shift from strong seller’s markets to more balanced or even tilted in favour of buyers.

Could the Canadian housing market be in store for the return of the low-ball offer? While this buying strategy became all but extinct, given the heated housing market in the last couple of years, rising

What is a Low-Ball Offer?

A low-ball offer is when a prospective homebuyer makes an offer to purchase a home below the asking price. While the term usually carries a negative connotation, as it can be viewed as undervaluing the worth of an asset or even disrespectful to the seller, it’s often part of negotiation strategies in the real estate market.

The motivations behind making a low-ball offer can vary. Some buyers may genuinely believe the asking price is inflated and are attempting to correct it. Others may be testing the waters to gauge the seller’s flexibility or desperation to sell. Low-ball offers may be more common and even expected in specific scenarios, such as an economic downturn or a buyer’s market.

Pros and Cons of Making a Low-Ball Offer

Here are the benefits of making a low-ball offer on a house:

Potential for Savings

The most obvious advantage of making a lowball offer is the possibility of securing a property for well below its market value. A lowball offer can result in significant financial gains in some cases.

Negotiation Leverage

A lowball offer can be a starting point for negotiations. Even if the seller doesn’t accept the initial bid, they might come back with a counteroffer that is still lower than the asking price, providing a better deal for the buyer.

Testing Seller Flexibility

Making a lowball offer can give you insight into how motivated the seller is. If they’re eager to sell, they may be more willing to negotiate, providing you with advantageous terms.

Here are the drawbacks of making a low-ball offer on a house:

Risk of Rejection

A lowball offer may insult the seller to the point where they refuse to entertain any future offers from you, effectively closing the door on a property you’re interested in.

Lost Opportunities

Particularly in a seller’s market, making a lowball offer can result in losing the property to another buyer willing to pay closer to the asking price.

Questionable Appraisal

If your lowball offer is accepted, it might create problems with financing. Lenders typically won’t finance more than what the property appraises for. They might also be suspicious if the selling price seems too low. An appraisal might be required to get the financing you need.

When Should You Make a Low-Ball Offer?

Low-ball offers are more common in a buyer’s market when there are more listings than buyers, and competition is not a factor. Another common scenario for low-ball offers is when looking to purchase a fixer-upper. Another common scenario for low-ball offers is when the buyers know they are dealing with a very motivated seller whose objective is less time on the market versus holding out for a price.

While there’s no hard and fast rule when it comes to making a low-ball offer, there are some things you can do to improve your chances of success. First and foremost, trust your real estate agent’s professional opinion on whether to come in at a low price and exactly how low you can go.

5 Things to Consider When Making a Low-Ball Offer

1. Understand the market when determining how much to low-ball an offer. If it’s a buyer’s market, you have less competition and more negotiating power. In a seller’s market, homes are in greater demand (often thanks to an influx of buyers, a shortage of listings or a combination of both scenarios), and the chances of a successful low bid are less likely. Trust the market conditions more than the home’s listing price when deciding whether to go in with a low-ball offer. Your real estate agent will likely already have done a comparative market analysis, offering valuable insight into what comparable homes in the area have sold for recently.
2. Consider days on the market. How long has the home been listed for sale? If you’ve been shopping the housing market, you’ll notice it when a home keeps surfacing in your listings feed. Depending on the homeowner’s urgency to sell, they could be more likely to accept a low-ball offer as days turn into weeks and months. It could be market conditions that have the home sitting on the market without any nibbles, or it could be the home’s condition. As part of your offer, a home inspection is a good idea to determine if any problem areas can be fixed and at what price.
3. To sweeten a low-ball offer, make it a clean one. When a quick sale is the seller’s objective, a great way to sweeten the taste of a lowball offer is to remove the conditions. The seller likely already feels like they are making concessions on price, so removing conditional clauses could help. To help you stay limber at the offer table, ensure you get pre-approved for a mortgage before you start shopping. You’ll already have been approved for financing and know precisely how much you can spend. Removing this condition could tip the scales in favour of a quicker sale. But buyer beware! It is generally recommended to have a home inspection before agreeing to buy any home.
4. Understand the seller. Knowing the seller’s reasons for listing their home could help inform your buying strategy. Maybe the homeowner has already purchased another home and needs to unload this one to avoid paying double mortgages, double property taxes, and double utilities. You get the idea. Perhaps the owners have inherited the property and have no interest in keeping it. A new baby, a new job, or a slew of other factors could also prompt the need for a quick sale.
5. Don’t risk offending the seller or the listing agent by coming in with an unreasonable offer. Ultimately, every seller wants a fair price, just as every buyer wants a bargain. Don’t waste the seller’s time, or yours, with an offer you know won’t be accepted. Be fair and come prepared with a rationale behind your lowball offer. It could be the market, the home’s condition, the property’s location, the time the house has been on the market, or something else entirely.

The success of your low bid will depend on several factors, including your strategy, market demand and the seller’s sense of urgency to sell. Work with your real estate agent to ensure your strategy is considered from every angle.

Originally published on the RE/MAX Canada Blog.