Lowball Offers: The Ultimate Guide | Real Estate SkillsMay 19, 2020
According to the 2020 Home Buyers and Sellers Generational Trends Report from the National Association of REALTORS® (NAR) Research Group, 41% of listed homes have a price reduction before they get an accepted offer. This means there's usually some flexibility in the listing price, if you use the right offer strategy.
Lowball is a common term when it comes to any form of commerce. We typically see the word pop up when someone is buying something secondhand from another individual.
Let’s say you go to a swap meet or a garage sale and you find something that you’re willing to purchase, but the price is too high.
You can either:
- Agree with the price and make a purchase with no hesitation.
- Negotiate the price with the vendor since it’s a secondhand item, in an attempt to purchase at a lower price.
If you chose Option 2, then you chose the basic principle of lowballing.
Now that we've covered the basics, here’s everything you need to know about lowballing in Lowball Offers: The Ultimate Guide! Use this menu to jump to different sections in the article:
- 1. What Is The Meaning Of Lowball?
- 2. What Is An Example Of Lowball?
- 3. Who Uses Lowballing?
- 4. What Is A Lowball Offer?
- 5. What Is Lowballing Psychology?
- 6. What Is A Lowball Technique?
- 7. How To Lowball Offer On A House?
- 8. When To Lowball A Property?
- 9. What Is Considered A Lowball Offer On A House?
- 10. Can I Lowball A Foreclosure?
- 11. What Is The Difference Between Lowball And Foot-In-The-Door?
- 12. When To Reject A Lowball Offer?
- 13. How To Counter A Lowball Offer On Your House?
What Is The Meaning Of Lowball?
First and foremost, the term “lowball” should be looked at as an adjective or a verb. In the context of negotiation, lowballing is the action of making an offer that's perceived as low.
Lowballing is essentially offering a price below a seller’s asking price. Look at it this way, if a vendor is asking for a certain price on an item and you offer a lower amount in an effort to price him down - that’s lowballing.
The following video explains a brief overview of lowballing:
Now, what happens if a seller doesn’t accept your lowball offer? No need to worry! The principle behind it is that you offered in the first place, so this could serve as a gateway to pushing negotiations forward.
As we like to say here at Real Estate Skills, an offer is better than no offer.
What Is An Example Of Lowball?
We'll learn more about this concept by looking at an example of lowball.
Let’s say that a car salesman negotiates with a customer in selling a car. At first, the car salesman will come up with a price that they’re both comfortable with. Then, once the customer commits to that price, the salesperson takes the agreement to their manager.
After speaking with the manager, the salesperson states that the manager intends to charge $500 above the original agreed upon price. Since the customer already committed to the price, they follow through with the purchase.
In this example, the salesperson never intended to honor the original price because that initial price was the lowball offer.
See how it works?
Similarly to selling cars, this tactic is no stranger to real estate. As a matter of fact, it’s very common to see lowball offers across many deals within real estate.
Know that in real estate, the buyer is almost always the side making a lowball offer. Lowball offers in real estate are particularly common in a buyer market, whereas a seller's market is less likely to see as many lowball offers.
Who Uses Lowballing?
As mentioned in the example above, lowballing is commonly used when selling cars. Additionally, it is frequently used in real estate investments and sales.
Lowballing is a universal negotiation strategy used by buyers across many different industries and markets.
Anyone buying an item secondhand or that is expected to have a varied, flexible price may want to lowball the cost.
Examples of buyers who may use lowballing are:
- Real Estate Agents
- Real Estate Investors
- Real Estate Wholesalers
- House Flippers
- Property Developers
- Car Buyers
- Swap Meet & Garage Sale Buyers
- eBay & Auction Buyers
- Bargain Hunters on Craigslist, Offerup, and Letgo
- Facebook Marketplace Buyers
Lowballing In Real Estate
Now in real estate, the buyers who typically make lowball offers are the first 5 on our list: Real estate agents, real estate investors, real estate wholesalers, house flippers and property developers.
Real estate agents, for example, are responsible for brokering real estate transactions. In the negotiations process, they may implement lowballing strategies to get the best deal for their buyer client.
The same goes for the other 4 types of buyers in real estate. The end goal is to get better prices so that they can make money on transactions.
To do so, a typical real estate buyer may utilize lowballing techniques when trying to acquire properties through real estate listing sources such as:
In real estate, investor buyers and their agents are the ones who mostly use lowballing. They're simply trying to get the best price or cost on a house not only for themselves, but also for their clients and investors that they represent.
What Is A Lowball Offer?
So, we know the meaning and an example of what a lowball is, but what exactly is a lowball offer?
Well, a lowball offer is an offer that is significantly below market value. An offer is considered a “lowball” if it is significantly less than a seller’s asking price.
Something very important about lowball offers that you need to watch out for is the difference in price between a house’s market value and its asking price.
Some questions you may want to ask yourself before making an offer on a property include:
- What are the values of the other houses in the neighborhood?
- At what prices are comparable homes offered?
- What are similar homes selling for?
- Are area prices rising or falling?
Luckily, your agent can provide you with all this information in a comparative market analysis (CMA). The key is to understand values better than anyone else, so instead of making an offer that offends the seller, you make an intelligent lowball offer with market data to justify your proposal.
Also, watch out for other buyers. They could beat you to the punch and steal your good deal if you don’t stay on top of these questions and move quickly.
“Allow other people to speak first; the important factor is not who talks… it’s who listens.”
What Is Lowballing Psychology?
That’s right, there’s a psychology to lowballing!
Viewed as a negotiation technique, being skillful in lowballing psychology could work as a fantastic way in getting a bargain when house hunting.
Here are the 4 simple steps to the lowballing psychology:
- Don’t Make Enemies
- Ask a “Trojan Question”
- Make a “Trojan Compliment”
- Leverage Question and Compliment
Don’t Make Enemies
Though this may seem like a very fundamental aspect of life, there’s more to it in regards to lowballing.
What most people do wrong when it comes to lowballing, is that they throw in their offer too soon. Instead, you want to become friendly with your buyer and build a relationship. You shouldn’t come off as aggressive, especially if you’re trying to buy a home from someone.
Jumping the gun in this case could ruin the potential of building a relationship with your seller. You want to start off on the same page, so then you could enter the psychology of persuasion.
Ask a “Trojan Question”
First off, the term refers to asking a question in which you already know the answer will touch up on defects and/or problems.
In regard to lowball offering, let’s say you’re selling a property that needs renovation.
The home buyer should open up by asking if the house may need renovation, rather than stating that it needs it. This would lead the conversation in a different tone and could even lower the selling price due to any needed renovation costs that the seller reveals.
Make a “Trojan Compliment”
Similarly to the trojan question, a trojan compliment is a compliment hiding a critique.
It consists of bringing up an issue to the seller’s mind in a kind, subtle manner. For example, if you’re buying a property in the middle of the city, bringing up traffic noise is a negative detail that’ll stay in the seller’s mind.
This is a small detail that plays with the mentality of the seller and may cause them to entertain a buyer’s low ball offer.
Leverage Questions and Compliments
Finally, here's where you make it happen. You leverage the results from your trojan question and compliments and see where it leads you in the negotiation.
If done successfully, it could score the buyer a price or cost reduction.
The beauty about lowballing psychology is that these 4 steps are very subtle, but they could be incredibly beneficial when implemented correctly.
It’s an effective technique used by buyers to score great deals, and helps sellers see things from another perspective if they’re selling a property that may even have the slightest problem.
What Is A Lowball Technique?
Simply put, a lowball technique is a compliance strategy which is used to persuade someone to agree to a request.
Key word is compliance.
There are 2 different points of view we're going to be focusing on:
- The Seller
- The Buyer
In a sales scenario, this lowball technique is used by sellers to persuade customers to purchase products. These scenarios include a homeowner or listing agent selling a property to a buyer.
It starts off with the seller using the technique to present an attractive offer at first, perhaps a low initial asking price. The offer will be attractive enough to get the other party (the buyer) on board with it and pursuing the property.
Then, before finalizing the agreement, the seller will then change the offer, usually by increasing the price. This is very similar to the example provided earlier in the guide.
From the buyer’s perspective, this request will be much less favorable than the initial offer.
At this point, the buyer will feel trapped. Since they’ve already extended their effort, emotions, and commitment towards the agreement, they feel obligated to continue moving towards the next step.
See, this is the trick behind the seller's lowball technique. It plays with the mind of the potential buyer and aims to persuade them to commit to a small action. This small action then grows as the request changes, and the buyer is expected to continue their commitment as it changes.
To put it into perspective, both parties form a relationship after they commit an agreement to one another.
The seller then makes a second request before the commitment is fulfilled (e.g. the buyer signing the contract). This second request includes a higher demand, which is typically a higher price.
All in all, this lowballing technique is beneficial for the seller. The buyer does their part by standing their ground while also staying committed to the agreement.
Now, what about the buyer side of the lowball sales scenario?
An extremely useful tactic used by many buyers is the Ackerman Bargaining Method.
The Ackerman Bargaining Method is a tool that consists of making offers with prices that gradually decrease in increments until your target offer price is reached.
To start, you need to identify your target price or maximum allowable offer (MAO). This price is the most you would be willing to pay at the end of the transaction.
Next comes the step that sets this tactic apart from others, which is the method of initially offering 65%, then 85%, then 95% and finally 100% of the target price.
The meaning behind this method is bargaining with a percentage of your target price in mind, using these percentage increments to negotiate. Each time you move forward within the increments, the seller will be more convinced about the price you're offering.
In the end, this tactic is in the buyer's favor since it allows the buyer to effectively negotiate with the seller to reach a price in which they can both agree upon.
Related: MAO Formula: The (Ultimate) Guide
How To Lowball Offer On A House?
There’s going to be a lot of takeaways in this section, so listen up!
There are many different steps one would need to undertake on how to make lowball offers on a home. Check out the following 5 Steps to see how you could effectively negotiate and buy a home with your lowball offer:
Step 1: Talk To The Seller Or Listing Agent First
As mentioned previously, it’s better to introduce yourself as more than a customer whose trying to score a good deal. You genuinely want to speak to the seller or listing agent and build a small relationship with them, especially since you’ll potentially commit yourself to something as big as buying a home.
It’s also very useful to do this so you can learn a little more about their background and maybe you’ll even learn why they’re selling the property in the first place.
Step 2: Build Rapport
This step is huge.
Not only is it a vital step in the professional world, but it could also help you go a long way within a real estate transaction and new relationships.
Building rapport is the ideal way to establish a strong two-way relationship between the buyer and the seller. If you talk business right away it may come across the wrong way and possibly even offend the seller.
Now, how do you build rapport? You can learn how to stimulate it by:
- Checking your appearance
- Remembering the basics (be culturally appropriate, listen carefully, relax, smile)
- Finding common ground
- Creating shared experiences
- Being empathetic
- Mirroring and matching
Though these may seem like pretty basic steps that you may already know and are used to doing, it doesn’t hurt to freshen up on them. Learning to effectively implement these steps could create a strong bond between the buyer and the seller.
Step 3: Understand The Seller’s Motives
You can’t meet the seller’s needs if you don’t know why they’re selling their property in the first place!
Are they not able to afford it anymore? Do they need to move out quickly? Did they find their dream home in a different area? Has their home become a hoarder house?
Once you find out and understand the reason behind the sale, then you can structure your offer in a way to fulfill those needs.
You want to learn how you could help them out, besides the price or cost.
Step 4: Be Flexible With Terms
When it comes to a real estate deal, there are 2 things you need to keep in mind: Price and terms.
We all know what price is, but what are terms?
Basically, terms are something that the sellers get when the buyers get their price.
Example questions regarding terms include:
- How quickly can we close the transaction?
- How quickly will we satisfy inspection, financing, appraisal contingencies?
- Can I offer with all cash and close quickly? (Cash Buyers)
- What repairs does the property need?
- How much have other properties in the neighborhood sold for?
- Can I afford to pay for all closing costs?
Step 5: The 70% Rule
The 70% rule dictates that one shouldn’t pay more than 70% of the after repair value (ARV), minus repair costs, when determining the maximum price you should consider paying for a property.
It's a good idea to use a more precise deal analysis spreadsheet, however using this rule is a quick way to run the numbers.
Here’s the formula as well as an example of the 70% rule:
When To Lowball A Property?
So you found a potential property you’d like to invest in. Now comes the question: When should I make a lowball offer?
Luckily, this question isn’t too hard to figure out!
Here are 6 signs that will help you determine the best time to make a lowball offer:
1.) When The Seller Wants Out
This may be the case sometimes when a motivated seller just wants out. Some homeowners want to sell so quickly to the point where they’d accept lowball offers if they need to.
2.) When You Think The Price Is Overvalued
Some sellers may get carried away with the value of their home. If this happens, their home could sit for many months on the market without selling.
This is when you and your real estate agent step in and assess the situation.
Find out how much other houses in the neighborhood are selling for. This could prove your point and it may be the perfect time to submit your below-asking offer.
3.) When You’re Not Too Picky
Though it may sound obvious, you’d be surprised as to how far this could get you! If prices or costs are your only concerns, then you shouldn’t feel bad about throwing around multiple offers left and right. After all, submitting offers doesn't cost you anything.
4.) When The Home Is On And Off Of The Market For A Long Time
In this case, you need to keep your eyes peeled. Keep an eye out for houses that have been lingering on and off of the market. The property is clearly struggling to sell and could be the opportunity to succeed in having your lowball offer accepted.
5.) When The Home Is Outdated And There’s No Competition
This is something that sellers really need to be aware of. Some sellers may be very stubborn in regard to how high of price their property can sell for.
However, they’re bound to change their mind after being on the market for months if nobody submits an offer.
This is when you swoop in with a low ball offer and score a good deal on the home!
You walk away having the upper hand since there was no competition to hold you down.
6.) When You Want To Make Profit
Though this may seem more obvious compared to the other scenarios, but is one of the keys to having success in any real estate investment strategy.
Examples on how to make profit off of a house include:
- Fixing and flipping the house
- Using the BRRRR method
- Wholesaling the property
- Tear down and develop the property
What Is Considered A Lowball Offer On A House?
The thing about lowballing is that there is no value set in stone that is considered a “lowball offer.”
It’s completely up to the seller. The seller has to power to consider any price below their asking price, assuming the listed price is already at the bottom of what they want.
Believe it or not, it’s generally accepted that asking over 15% off the sales price is lowballing.
However, making a lowball offer is usually accepted as reasonable. In some cases, it may even satisfy both parties.
Can I Lowball A Foreclosure?
A common question that comes to mind is: “How low of an offer can I make on a foreclosed house?”
Here is a list you should consider when trying to answer this question:
- How many days on market has the property accumulated?
- How much time has passed since the last price decrease?
- Did the listing agent indicate the bank may be willing to accept a lower offer?
- How's the current listing price relative to the market?
- How strong is your lowball offer outside of the price?
- Have I built rapport with the listing agent?
- What condition is the property in? How much are the needed repairs?
- Banks are more flexible when they are trying to liquidate, but not getting their price
What Is The Difference Between Lowball And Foot-In-The-Door?
The lowball technique is an aggressive negotiations strategy used by buyers trying to purchase a home in order for them to get the seller to give them a good price.
Now, the difference between the lowball technique and the foot-in-the-door technique is that the foot-in-the-door assumes that agreeing to a small request will increase the likelihood of agreeing to an even larger request.
It works on the principle of consistency. Meaning that as long as the second request is consistent within the nature of the original request, then the technique will work.
Studies have shown that groups of individuals who are asked for a small request initially are more likely to do the larger request, as opposed to individuals who are initially asked to do the larger request first.
Since the foot-in-the-door is mainly used by sellers, it relates to the lowball technique from the seller's perspective. It's similar because you get the buyer to agree upon an initial request, and then you put an increase on the original terms once they've complied.
Here's a 5 minute video that explains the foot-in-the-door technique:
When To Reject A Lowball Offer?
Let’s say that a buyer proposes a lowball offer that the seller just cannot accept; there’s no harm in rejecting it!
The seller is the decision maker, after all. Buyers are under the mercy of the seller who has the power to reject a lowball offer if it's seen as too low.
A very common form of rejection towards lowball offers is the classic “no lowball offers.”
This phrase simply means that the price is firm and the seller is set on the price they originally listed the property for. They have no interest to go below the price and that’s final.
Another key detail to keep in mind is that it’s always better to decline an offer as opposed to flat out ignoring it. Remember, keep it professional!
How To Counter A Lowball Offer On Your House?
Just to make things clear, there is absolutely no harm in countering a lowball offer. At the end of the day, the seller is just trying to achieve their main goal: sell the property.
Something important you would want to keep in mind as a seller is that you never want to let the deal die on your end, unless the offer is absolutely unreasonable.
Make sure that when counter offering, you give a little ground, but not much. By doing so, it’ll shake off buyers trying to make a quick buck and make room for those who are more serious and willing to commit themselves towards the transaction.
The perception of your willingness to counter doesn’t matter -- what matters is the result.
Final Thoughts On How To Make Lowball Offers
Overall, lowballing is an incredibly interesting strategy. However, it’s not something that could be easily picked up by everyone.
We consider making lowball offers a skill, in that you need to be convincing in order to successfully lowball the other party. Also, the deal should always result in both parties being satisfied.
It takes practice in real estate deals to become skilled in making lowball offers. With that said, all the information mentioned in this guide should help you learn the basics of lowballing, avoid common mistakes, and eventually be able to master lowballing.
We hope you enjoyed Lowball Offers: The Ultimate Guide!
Remember this strategy the next time you come across a great investment property!