Timing a Low-Ball Offer

Posted by urbandigs

Thu Oct 19th, 2006 07:54 AM

A: Great topic for the times we are in right now in NYC. Is there a bad time to submit a low-ball offer? The answer is 'YES' which brings us to this topic for today. When would a good situation arise for a qualified buyer to low-ball and submit what I like to call a '1-TIME OFFER'?

Low-Ball Offer: A low-ball offer is a term used to describe an offer on a house that is substantially less than the asking price. While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected. In a buyer's market a motivated seller will either accept or make a counter-offer.

First lets clarify two things: YOU LIKE THE PROPERTY & YOU ARE QUALIFIED TO PURCHASE IT

low-ball-offer-nyc-real-estate.jpg

By the latter I mean that you earn at least what the board is looking for and are under the pre-determined debt/income ratio and that you have sufficient liquid assets leftover after closing to meet another set of pre-determined levels (generally you will need to show around 12 months of maint + mortgage in liquid).

Now that we know you can get the property, you need to shove the seller up against the wall and make a play.

For buyers, the BEST situation to submit a low-ball offer is when:

1. Seller has reduced the price for 3rd time
2. Seller reduced price two times within 4 weeks
3. Property has been on the market for at least 4 months
4. You show up to OH and apartment is empty with no names on sign in sheet
5. You find out that seller bought 5+ years ago
6. Imperfections are cosmetic NOT permanent

Some examples would include:

131 W 28th Street - Reduced from $995K to $800K; Reduced twice in last 4 weeks. On market since 6/1/2006.

100 W 72nd Street - Reduced from $925K to $799K; Reduced twice in last 3 weeks. On market since 4/19/2006.

444 East 84th Street - Reduced from $750K to $659K; Reduced twice in last 3 weeks. On market since 8/17/2006

100 West 39th Street - Reduced from $749K to $699K; Reduced three times since on market in first 4 1/2 weeks.

The WORST time to submit a low-ball offer is when:

1. Seller has not reduced asking price yet
2. Apartment is less than 4 weeks on market
3. OH and/or showings are crowded

THE KEY

The KEY is to accept imperfections! Its VERY hard to find everything you are looking for anyway, so don't miss out on a great deal if there are a few imperfections in the property; especially ones that can easily be updated!

If you are a stingy buyer than the perfect property you are seeking will never make it into the BEST scenario for making a low ball offer OR the low ball offer itself will just insult the seller making future negotiations with you difficult.

All of this seems pretty logical and straightforward but in this business I see low-ball offers being submitted at the WORST times! There is NO WAY a seller will respond to a 1-Time Low-Ball offer if the property is only 3 weeks on the market and there were 10 people at the OH on Sunday! It's a waste of a good strategy to try and get a great deal from a desperate seller.

To go on a slight tangent here, if the property is new on the market and you know there is activity on it, and you absolutely love it, then bid accordingly! Don't risk insulting the seller and giving them leverage with the other interested buyers in that they can now honestly say, 'we have an offer submitted, there was no response yet'. You will be amazed at what some buyers do when they find out an offer was submitted on a property they love!

Anyway, back to finding the best situation for a low-ball. You must find signs of DESPERATION!! Does this person HAVE TO unload this property right now! Did they buy over 5 years ago making the deal a very profitable one for them even if its much lower than they originally hoped! Were there more than 1 price cut within a month? These are the things that make low-ball offers work! They are reduced to $750,000 from $850,000 over the course of 5 months, with 2 price cuts of $25K within the past month alone.

I know, its hard to find all of those criteria for any one property let alone one you want to buy. But, I list the BEST situation with those 5 characteristics. You don't need all of them for a 1-time low-ball offer to be effective.

SUBMITTING A 1-TIME LOW-BALL OFFER

  • Submit an offer letter, pre-approval letter, and financial anaysis

  • Clearly state your financial strength; job position, salary, and liquid assets

  • Clearly state it is a 1-time, take it or leave it, offer

  • Explain how you got to your offer, including comps, and ppsf valuations

  • State you are 'ready to close'; preferably ASAP

  • BE REALISTIC w/ the low-ball. Don't bid 30% below ask and expect it to work. Think about why 10% or 15% below ask may be accepted. Remember you are removing any future negotiating from the equation so this is the only bid your willing to make!


    • Typically, low-ball offers are made by unmotivated buyers seeking a deal. Sellers usually shrug them away refusing to play the game. This is why you MUST prove your seriousness as a buyer and submit the offer as I describe above! It's your best chance to make it work.

    By removing the option of a response (taking out negotiations) you hit the desperate seller where they hurt the most, and put the ball in their court to make a deal happen right now. While it is a bit of a risky strategy if you really love the apartment and are haggling over $25-50K or so, it usually works when the timing is right. You just need to be in the right place, at the right time, and like what you see and who knows, maybe you'll get it for much less!

    Happy Bidding!

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