How low is too low when making an offer on a home?
By Day Marketing
Buyers aren’t keen to overpay when they purchase a home, but their real estate agent will often discourage them from making a lowball offer. While negotiations over the price are common, asking for too much of a discount may cause the seller to reject you outright.
However, buyers can often drop the price considerably below the what the seller originally asked for. How low you can go depends on a number of factors, including market conditions and how motivated the seller might be to move out.
Naturally, an offer with a reduced price is unlikely to get serious consideration in a seller’s market. Tara Mastroeni, writing for Realtor.com, says properties are more likely to be snapped up in popular areas with limited inventory. In these markets, homes can easily receive multiple offers and be involved in bidding wars.
You may also be unsuccessful in asking for a lower price if the seller’s asking price is already well below the value of comparable properties. Anthony Lamacchia, writing for the Boston Globe, says a seller may even deliberately underprice their home in an attempt to spark a bidding war.
A seller may be more likely to accept an offer with a reduced price if their home is in a buyer’s market, such as an area where there are multiple competing properties. Mastroeni says buyers may consider submitting an offer with a 10 percent reduction in the asking price right off the bat. However, a particularly steep cut—namely 25 percent or greater—is more likely to be rejected as unrealistic.
Look for signs that a seller may be anxious to find a buyer. The property may have been on the market for several months, and the seller may have already reduced the price a few times. Constance Brinkley-Badgett, writing for Credit.com, says you can try to find out why the seller is moving. If they are relocating due to a job change or otherwise under pressure to find a buyer by a certain date, it may be easier to negotiate a lower price.
Sometimes the seller’s price has simply been set too high. Amy Hoak, writing for MarketWatch, says your offer can include information on comparable properties which have been selling for a lower price or point out deficiencies with the home that negatively impact its value.
Don’t be too harsh in your criticism. The seller likely has a sentimental connection to the home, and won’t appreciate a buyer pointing out perceived flaws. Michele Lerner, also writing for Realtor.com, says it is preferable to have your real estate agent communicate with the listing agent and express your overall appreciation for the property.
Sellers may think that an offer with a significant price reduction is insincere, so you should take steps to show that it is serious. You may include a letter showing that you have been pre-approved for a mortgage, include an earnest money deposit, be flexible on the closing date, and eliminate certain contingencies.
It’s rarely a good idea to waive the home inspection contingency, however. This step in the process can identify any problems with the home’s condition, which in turn can lead to further financial negotiations.
Be aware that a reduced offer can be the start of a prolonged negotiation over the price. The seller may counteroffer with the full price, or even above the original asking price if they think they are in a good negotiating position. Hoak says buyers should be flexible with their initial offer, but also know their limits and have a point where they’ll be willing to walk away from the negotiations.
Consider how much you want the home before making an offer with a reduced price. Mastroeni says there’s always the risk that a seller will refuse to even consider you if your offer is too low. This won’t be a major concern if you’ll simply resume your search; if you’re eager to acquire a particular home, however, you’ll want to make sure your offer won’t offend the seller.