I remain intrigued by discussions I often hear in real estate where low offers are called "insulting" or other names and descriptions (such as "low ball", "useless", "waste of time", and "disrespectful").
This is usually followed by a discussion of how any "serious" offer on a home should be within 5% to 8% of the list price. Huh? Where do professionals get the nerve to disparage a business offer?
I can understand how a home buyer or seller can see things as personal, especially if the house has been their home for years. What I find particularly interesting is why so-called "real estate professionals" play this ridicule game instead of honestly advising their clients on the current market, value issues, and the business side of the house sale/purchase.
Are there any other business markets/industries where low offers are commonly and publicly ridiculed?
In my years of running businesses, we make offers on projects and we help other companies with products and service they buy and sell. Pricing that is too high or too low may remove a company from consideration, but the effort to propose and consider doing business IS APPRECIATED... not ridiculed.
At the same time, I rarely fail to hear these same "real estate pros" make the same "insulting" comments about houses that are listed at 40% to 80% of the price the house sold for in the last 8 years. Come on... how can it be insulting one direction and not the other?
Where is it written that a seller can jack up a price by huge amounts as "acceptable" but offers that are not close to this new price are "insulting?"
Here are some of my theories of why some of the "pros" play this game of labeling low offers as "insulting" and making business deals suddenly very personal:
* Suggesting that a low price could be "insulting" plays well to many uneducated clients. This is a pure manipulation ploy.
* Suggesting that a low price could be "insulting" discourages written offers that are less likely to be accepted, thus saving the agent time. This is independent of the reality that some low offers are accepted or are at least a start of negotiations.
* Many people, including Realtors, are still uncomfortable talking about money and, deep down, just want to follow a pre-determined recipe instead of possibly challenging negotiations. The recipe they prefer works something like this: List Price... Offer of 8% off List... Counter of 4% off List.... Sale of 6% off List. Everyone plays the dance even though it was all based on the list price, not the value. Anything else is "uncharted" territory and confuses the recipe-followers.
* They heard others discuss low offers as "insulting" and are just repeating the concept without much thought or concern. "I heard it in the office, it must be true."
* A buyer's agent learns this is a great "tactic" (dare I say, "trick") to sell their clients a house that may be overpriced (instead of advising on why the house may be overpriced). These agents are more worried about getting a commission on a fast sale than helping the client get an appropriate deal.
* It may be the listing agent, not the homeowner, that sees the offers as an insult. They either suggested the current list price or failed to put forth the effort to properly advise their client. Now the low offers "suggest" they did not do their job and to save face, they disparage the offer. They may have even priced price appropriately but privately fear the homeowner will think the buyer's agent is smarter or market savvy.
* The buyer's agent honestly believes all list prices represent current house value. "So what's left to negotiate? Don't waste my time." they think.
* Many agents passed the licensing exams and have sales training but they are not skilled negotiators. So, they use name-calling as way to try to avoid negotiations that could be challenging or time-consuming (even if it can result in a purchase).
* In many business-to-business deals, ridiculing offers or services can come back to haunt a business as this behavior establishes how professional they treat others including those that are not vendors or clients. The client or vendor you did not make a deal with today may be still be a client or vendor in five years. So, I wonder if few agents expect to never work with the other party on the deal, thus they are free to ridicule the offer or the price openly.
I want to be clear that I am not clueless... there are buyers that just don't understand the market or have some idea that they can buy EVERY property for pennies on the dollar.
At the same time, that does not mean that the low offer they submit may not be accepted (more work perhaps but who said ever client and every deal is easy). Or that the low offer is in any way personal. An insult is only an insult if it is personal. The buyers usually don't know the listing agent or the homeowners, so it can't be personal. It is free market.
Owners may list as they see the value (right or wrong). Buyers may offer what they see is the value. It can be accepted, rejected or countered. Injecting phrases such as "insulting" takes a business deal and makes it personal. Once it is personal, all further negotiations are much more challenged.
Isn't our goal to make deals happen, not make deals harder?
An offer is an offer in today's market. It is either acceptable or not to the seller. I've been on both sides. Our goal is to assist our clients in the process.
Jessica, you got it... that is the attitude that gets repeat business from the best clients (and their referrals)! G
When homes are priced right, it can be very difficult to categorize an offer that is 50-60% of asking price, particularly you know that the buyers are working under the philosophy that they can, indeed, purchase a home at half price if they just try long enough!
You have some great points on making sure the list price is on market. If it is, and the comps reflect that, then yes most offers should be at least somewhere in the ballpark.
Penny, great points! While there is the occasional buyer that has no money sense, there are some that are new to the business of real estate and money. Sometimes they have to go through enough failed offers to understand the reality is different than their perception or advice from friends and family. Does that educational process cost the time of others involved? Sure... but I think we've all made learning mistakes too that cost others time. A regular cost of doing business in all industries is impact of the learning curves of clients, vendors and colleagues. Great post! G
Glen,
You are so right. The learning curve can sometimes be very great when buyers continue to listen to their family and friends as practicing Realtors. In today's market an agent that listens and helps the buyer through the process with practical advice and works hard for them to achieve the best price, the best lender and the best "experience" in a transaction will have many referrals from "raving" fans!!
Lots of investors out there doing just this. Low offers and gaining wealth in this down market. Is it fair? Sure if you are up to your ears in debt and get a low offer is it better then no offer? I think so.
The idea that an offer can be insulting isn't unique to real estate. Yard sales, antique shops, any place that people dicker will find some lowball offers and a Seller waving them off.
Some Sellers will refuse to respond to a lowball offer. Not all Sellers are desperate. Placing lowball offers is one tactic but it does not always get the best price for the Buyer.
We represent the buyer. The offer that we present is made on behalf of them. We can offer guidance and help them to establish comps but at the end of the day, the house is worth what a buyer thinks it is worth.
I have found that buyers who are intent on putting in ridiculous offers often change their strategy when they lose a property they really liked--and realize they should have offered more to purchase.
You hit a lot of nails on the head here.
Dorie, you nailed a concept we find is a long-term key to success, earn the role of trusted advisor. This is where repeat business and great referrals do happen... but you know that! G
Sharon, you make an interesting point. And "fair" is a relative term, to the parties, to the situation, to the market and to the timing. What is fair to me today may not be tomorrow. Same for the buyer. Same for the seller! Good stuff! G
Margaret, you are right there are other markets where offers are considered insulting. But I still submit that is not all places where prices are negotiated. Most business transactions are negotiated. It is only where people make those negotiations personal that an insult can even be given or accepted.
Is a so-called "low-ball" still a low-ball if the list is way too high for the market? And it is true that a low offer will not get the best price for the buyer if you mean a high price. But a low offer may still be the best offer if no other offers exceed it. If that price is accepted, that is THE value of the house. If it is not accepted, then the current value has not yet been established by the seller or the buyer... yet.
Holly, Ah.. you make a great observation! Lessoned learned by your buyers. We all have lessons we learned the hard way too... hopefullly without the professionals insulting us! Great info! G
Ray, I hope so. Have a great day! G
Glenn, I consider a lowball offer a lowball relative to market value only, not to list. Overpriced listings generally don't go anywhere. In our market, properties sell on average for 95% of list and overpriced just doesn't sell. I am not hesitant to tell a listing agent or Buyer, if a listing appears overpriced. I personally find it frustrating when a property is priced right, below market and appraisal, and a Buyer wants to take another 30% off. Some Sellers won't respond. Sometimes a Buyer can get the best price by making a low offer, that is just high enough that the Seller will take a bird in the hand. Throwing multiple ridiculous offers out there, to see if anything will stick, is for me a waste of time. I have also seen a Buyer, when a lowball is accepted, make up an excuse to get out of thet contract - they weren't serious anyway.
Lowball offers work better for some properties than others. Obviously, lowball offers have a better chance with distress sales. The problem that I have is some Buyers do not want to distinguish between overpriced and well priced, just offer a set % off, and don't want to consider the circumstances e.g. has the property been on the market for awhile or is it new to market, well priced and getting a lot of showings?
I don't think name calling and ridicule belong in any negotiations and I haven't seen it. Just failed offers when the Buyer was completely unrealistic, just as we have failed listings when the Seller is unrealistic.
We do see some fluke sales, both high and low. i.e. some seacoast properties still sell at a price considerably above market. Someone really just wanted that house. But I don't consider one fluke overpriced sale to be a true market price. And I don't consider an occasional distress sale the market norm either because in our market, it isn't.
Anyway, good discussion and I do agree that ridicule and name calling have no place.
Sometimes it's the seller who gets 'insulted' and we need to reel them in. Not always easy to do. I've said to an outraged seller before 'You're right. It's insulting! Let's counter at asking price plus a million more.' After they stop laughing and calm down we can rationally discuss a plan for countering without the drama. If the buyer really is just fishing for a desperate seller s/he will move on and we can get on with the program. You are right, insults are personal. We have to be professional enough to understand that a home IS personal and good enough to take it away from them by diffusing inappropriate emotion.
Margaret, that is really good stuff and great recap of what you have seen. Sounds accurate to me. The market is indeed an everchanging entity, subject to supply, demand, buyer goals and seller responses. Great stuff! Thanks for coming by and sharing! G
Hi SarahGray (or is it just Sarah?)! I love using humor for this. Appropriate use of good-natured humor is a very powerful professional tool. And you are right, sellers have to understand that when something is on the market, you get all types of offers (including the fishing tests), not just the offers you want. Does it seem like a waste of time? Perhaps, but I submit that this is all a natural part of free market testing of the price points and ranges. If you don't test them, you never find them. Thanks!! G
Glenn,
We, the seller and I, got an offer for 25000 less than the asking price, of 179000.
After negotiating back and forth they came up to 175000.
When I talked to the Buyers Agent, I reminded her of all the work that was done and the also of the CMA, that I did before we priced the house!
You are right about insulting = personal and then it can get ugly. Best not to go there.
When the bar of entry is low, not a lot of inherent professionalism.
I doubt you would hear as many stories of "insulting offers" in commercial real estate or on Wall Street.