How do I make a low-ball offer?

Hi Guys,

Time to put my hand out and ask for some help...

I'm off to an inspection this afternoon on a place that Kay and I think has some real potential. Its an existing house built 1m from the rear bounday of a perfectly flat 750m2+ block. Potential to duplex it and put another place on the front half, subject to council approval. They're asking $650K but we reckon we could potentially get it for under $600K if we play our cards right. What I was wondering is, what approach do others here follow to put a low-ball offer on the table?

Should I just come out and say "I think its worth $587,400", or should I go in with a written up formal offer document with a blank bit where I write the price in and hand it over? Do I need to justify my thinking, or is it better just to make the offer and stand by it without getting into the whole "this is why I think its worth that much" dialogue.

My present thinking is that I'll just be polite, and make a verbal offer without justification. I'll state that I'm an experienced investor (maybe a bit of a stretch ) with a good feel for the local market and that is the price I'm willing to pay. I might point out that I'm cashed up with my deposit good to go and pre-approval in place, but a few more properties on my radar so I want a quick response. If they like the price and we get to contracts, then I'll whack in the subject to inspections clause to give me an out and some negotiation room.

Also, should I give the offer an "expiry" date, or just leave it open?

What are your thoughts on this process? Really looking forward to your assistance.

Many thanks in advance,
Michael.

MichaelWhyte said:

My present thinking is that I'll just be polite, and make a verbal offer without justification. I'll state that I'm an experienced investor (maybe a bit of a stretch ) with a good feel for the local market and that is the price I'm willing to pay. I might point out that I'm cashed up

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Micheal,
imho,
IF the vendor is smart they will let the agent know that they only
want offers on paper,and don't worry about any verbal offers.
I always do it that way,if someone takes the time to put a
contract in place then it's quite easy for the vendor to cross
out your offer and write the price they want ,that alone saves time
and worry on your part. also i would tell the agent nothing about
yourself only that you have the cash in place to buy a property
and i only intend to make one offer..Then walk on to the next one..

good luck
willair..

offer motivator

Hi Michael

One suggestion for you that has worked well for me and depends on the motivation of the vendor (though if time is one this will definitely be a key for them) is to get a signed contract with cheque and leave the settlement date open for them (obviously there would be a minimum of three weeks)
You would have to check with your finance guy that he could do it in that time but I can assure you this is a successful technique with a vendor that has bought elsewhere and is about to hit bridging finance

Glenn

Hi Michael

Sounds interesting.

First of all, why is it priced at 650k? Is it worth that or is it even worth in the high 500's? You may have done your due diligence and be satisfied that that is it's value and if so, well and good. The reason I ask.... we often sell them for the asking price or close to it but sometimes way below. eg, we recently listed one that had been on the market for quite some time for 380k, we listed it for 325k, had a further reduction to 297k, then 287k and eventually sold for 270k.

When making the offer, I’d advise against trying to justify your offer. I may sound a bit false in saying this but anyway... when a buyer tries to justify a lowball offer with all the reasons under the sun, I'll often just agree with them while thinking in the back of my mind, Yeah, yeah, yeah, we've heard it all before. The last thing you want to do is make a list of things wrong with a vendor's home and upset them. I'd just go in and make the offer.

Also, be up front and tell the agent any conditions and 'subject to's' you want to put into the offer at the start of negotiations. Personally I think it's unfair to negotiate a price and then add clauses. If I was the agent, I may then want to save face in front of my vendor and advice them to come back with a higher counter offer or tell the buyer to bugger off!!

As far as an expiry date goes, that can be a good idea but don't make it so short as to put pressure on the vendor and upset them. eg, IMHO, 1 - 2 days is too short where 3 - 4 days or longer is fine.

Be careful in telling the agent you have other properties you're looking at if you haven't. We've heard it a million times and is usually seen as BS. It can also makes you look silly if you do continue negotiating on that particular property for longer than you first anticipated.

All the above is probably obvious to you and others and won't of course fit every scenario. You're the man on the spot, you have the knowledge of what's happening around you. Play at as you see it and rememeber, its just game so treat it as such.

Cheers and happy negotiating

Gotta agree with WILLAIR on his tactics,

I recently got a property at MY price, by just advising the agent I was ready to offer.
Then the agent came to my house with the paperwork (I had not talked to the agent prior about what price I may offer).
I sat the agents down (2 of them) told them I had my money ready, only provisos on the contract were the finance clause, building and pest.

I was friendly but reasonably offhand about the whole thing, as if it was a bit akin to buying a new pair of slacks, for me.
I started filling in the contract with my details, till I got to the box where the price would be put.
I told them I work on the principle that a good buy comes around about once a fortnight on average.

I then used these words. "I will pay your vendor $XXXX for the property."

I then waited while they re gathered their thoughts.
I then just reminded them that I had my finance in place, and would be as flexible as possible regarding settlement dates.

I never used the word "OFFER".

I think that word OFFER triggers a new train of thoughts in the agents mind, he starts thinking about counter offer etc etc. I implied that I wouldn't get involved in that stuff.
(i know he would have come back with a counter offer if my price had been knocked back anyway)

My objective was to get him onto MY side, when the VENDOR asked the inevitable. "Do you think he will go a bit higher?"
I am sure when the vendor asked that question, the agent said "no, well I don't think he will". He seems like he may be looking at other properties too.
(iwasn't)
Michael I hope this experience helps you in some small way.
(You probably are aware of this sort of stuff anyway)

GIDDO said:

I never used the word "OFFER".

I think that word OFFER triggers a new train of thoughts in the agents mind, he starts thinking about counter offer etc etc. I implied that I wouldn't get involved in that stuff.
(i know he would have come back with a counter offer if my price had been knocked back anyway)

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There's some good advice there Giddo.

When you made the offer, I, as the agent, would say with a smile on my face something like, 'It's a bit low but it's a good place to start, isn't it?' Mnay a buyer have said, 'Yep, we have to start somewhere'. What does that tell me??

So, say less, not more! Try not to give anything away.

Also, try not to come accross as a smart guy. The agent may have more influence in the sale then you may sometimes realise. As much as I like to make sales, if someone gets up my nose, who knows what I may do. The money's not everything.

Cheers

Guys,

All excellent advice. Thanks heaps!

Based on that advice and pulling it together, I think I'll do the following:

1. Today, I'll go and have a look and I will take a contract away with me. I will indicate that I'm interested but not talk price at all. I will also mention that I have finance pre-approved.

2. Tonight, I'll discuss the pros/cons with my wife Kay and between us we will agree a price we are comfortable paying for the property if we agree its a goer.

3. Tomorrow, I will call the agent and tell them I am ready to make an offer in writing and invite them to come round to my place to do the contracts.

4. When they come round, I will adopt an approach similar to that outlined by Giddo above. I will fill out the contract in full, be explicit about "subject to building, pest and finance". Then be explicit on the price I am willing to pay the vendor. I will complete and sign a cheque for 10% deposit and hand it over with the signed contract.

Lets see how that goes. Sounds like a good process to me. If anyone has anything else to add/critique then please feel free to do so. Otherwise I'll post my outcome here in this thread whether we offer or not, and whether we buy it or not.

Thanks again,
Michael.

Micheal, it sounds to me that you are a little emotionally attached to this property. If you are DON'T let the agent see that. Be cool & business like. I would never tell an agent that I am an experienced investor. It's just me, but I feel if someone used that term to me if I was an agent I would be inclined to think the opposite.

As for making the offer, you need to get a feel for where the vendor is at. If they need a quick sale they are likely to be negotiable. Is the advertised price about right for the area & house, or is it already low. Work out what it is worth to you.

A house I didn't buy was the best negotiation I ever did. It was located in a realitively sought after area (for Western Sydney) & advertised at $200k. This was a few years ago now & the price for the area was around $290k. We didn't really want to purchase a house at that time (for an IP), but decided that since it was so low we would look at it.

It was an older home, with the back already subdivided off of it, so only small land content. The owner had run out of funds to complete the back section, so had to sell quickly, which I didn't know at the time. Calculated that it was still worth around $240k.

Anyway, to cut a long story short, after inspecting the house, we agreed that it was OK, but we were not interested. The agent pushed & said how much would you pay for it? Make me an offer. I said OK it would only be worth $150k to us. The agent looked at me like I had lost my mind as the owner had only just finished renovating it. I again stated that it would only be worth $150k to us. I would buy for that price, but otherwise not interested.

When he asked why such a low figure, I said that even though it had just been renovated, we would have to re-do everything as it hadn't been done very well. (That was true by the way. Think of a black bathroom & nothing finished off). I then ran off some numbers of how much each part would cost to rectify.

He rang back that night with a counter offer & I stuck to my guns & said I wasn't really interested in the house, but if the vendor wanted it sold I would pay $150k. He rang a couple of times after that & then we didn't hear anything for a couple of weeks. When he rang back he said OK the house is your's for $150k.

During those couple of weeks that passed we had bought our PPOR & didn't have the funds to buy that as well.

Now, don't get me wrong, I wouldn't bag out the house you are looking at. I did with that house, but the situation was completely different. Whether you use a verbal or written offer will depend on what you feel more comfortable with. I will rarely use a written offer if I am dealing with an agent that I know well, but they know me & the kind of offers that I make.

Don't give anything away to the agent. I usually ask them lots of questions. If the agent thinks you are a genuine buyer they can be very helpful. Good luck.

Hi all,

Michael,
Our experience has been that it never pays to come up with the price you are willing to pay in the first instance.

You are entering into a negotiation, and where you start should be lower than where you are willing to purchase. If the advertised price is way over the market, offering below the market should flush out the area that the vendor is willing to sell at. To us it has not mattered which way we do it(verbal or written), the results come back to the situation (and possibly desperation) of the vendor.

If you start too high with your final offer in writing, you will find yourself emotionally attached to the purchase, and end up paying more than necessary.

Good luck

bye

Hi,

Instead of finding the motivation in the vendor, why not find a vendor who already has motivation? I've learnt the hard way and I'm sure many others have here as well - Never hang yourself up over one deal. There are an abundance of deals out there.

What some of my more sucessful clients are currently doing is only going out to see properties that have been advertised in papers for at least a month, and/or have already had a few offer-contracts fall over. Once these are found, they attach a cheque written for an amount of full asking price minus 15%-20% and vendors are pretty relieved to see them

dtraeger2k said:

I've learnt the hard way and I'm sure many others have here as well - Never hang yourself up over one deal. There are an abundance of deals out there.

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Guys,

Just in case there's some misconception, I have no emotional attachment to this property, nor is it a "must buy". I was just asking for some assistance in the offer process so I could give it a good go. If they don't like my number, then I'll happily wait for the next one.

Thanks for all the assistance!

I'm off now to meet the agent at 5pm, so will post the outcome for those interested tomorrow.

Cheers,
Michael.

MichaelWhyte said:

Potential to duplex it and put another place on the front half, subject to council approval.

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Don't be wondering about this when making an offer, information in this case is definitely power.

I was looking at a property last year that I thought could be subdivided keeping the original dwelling. It had buckets of land in the back and units either side. However, I found out there's a requirement for a minimum distance b/w the house and the boundary when subdividing, and it was 2 foot too narrow in this case. This blew my "business case" for buying the property. Lucky I found this out during DD .

Hi Michael
Find out as much about the vendor as you can. What is the reason they are selling ? Why they want to sell it quickly?
We saved ourselves about 10K and got a long settlement on our last purchase because we found out that the vendor was stuck with bridging finance because they had already bought and moved to their new house.
We simply offered 5% cash up front but wanted 12 weeks to settle. The vendors took our offer over another that was 10K higher( they had to arrange finance and were not prepared to act quickly) Our offer solved their imediate problem.
Simon

Apologies for my presumptions, MW.

If that is the case, follow Dr S. Covey's advice and "Seek first to understand before you are understood". Find out exactly what their 'problem' is, and from that decide whether you have a 'solution' for it, or want to stay well away from it.

My 2c

Hi Michael, is this a NSW property? If so, I think the chornological order of your negotiations may have to be altered somewhat. If you hand over your 10% cheque and exchange contracts, I don't believe you can back out of it subject to all those things you mentioned. I thought you could really only get out of the contract if the solicitors found a defect in the title. I might be wrong here but it is unlike buying properties in WA, Vic or Qld where the sales process favours the buyers considerably as opposed to NSW. Thats why NSW vendors don't really care whether you have the readily available funds or not as once exchange occurs, burden is on purchaser to stump up with cash at settlement or else ur deposit maybe forfeited. Pretty tough to negotiate at the risk of getting gazumped. I very much prefer shopping in the other states!

Pls check with ur solicitor though.

I think that word OFFER triggers a new train of thoughts in the agents mind, he starts thinking about counter offer etc etc. I implied that I wouldn't get involved in that stuff.
(i know he would have come back with a counter offer if my price had been knocked back anyway)

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I think this makes alot of sense. The reason is that even if you have a little inside knowledge it is still pretty hard to know a vendors true motivation or trigger price. i know I certainly would not tell an agent why I am selling a home or what my plans are. Generally, it is probably best to take a firm position as giddo has suggested.

cheers

First thing I'd say is I think I saw figures recently saying that selling prices in Sydney were close to 10 % under initial asking prices, so I'd be thinking under 600 k is within normal range of negotiations.

I'd agree with the line about not trying to justify a low price in terms of the particular property . If you want to offer justification for the low price you could either say , I agree it may be worth more , but all I can afford is .....

Another possible explanation would be to say you're an investor looking to buy in that area. You not in a rush to buy , but you do want to get a good deal . You agree that it might be worth more , but all you're prepared to offer .

In both situations I'd make only one offer. If they come back with a counter offer you could negotiate at that stage . If they say it's not enough without a counter offer , I wouldn't re offer. Why ? If you looking at a certain area , I think it's just as important to establish your credentials with the agent so when the next place comes along and the vendors ask the agent if they think you will offer more , the agent will remember the last situation.

Have you gone around making dummy offers before ? Go around and find some places that you like , but are more than you are prepared to pay. Then make an offer at what you would be prepared to pay . We did that before buying our last PPOR at a time when wahroonga was just taking off. On a comparison we might have offered 500K . None of the agents were offended though a couple said that's low . I replied I know , but that's my offer. All of the offers got passed on , and several came back with offers considerably lower than what we would have expected.

See Change

Hi see_change
I like your approach
Great if you have time to have a good look around. Sydney seems ripe for that strategy ATM.
Regards
Simon

Hi Michael,

Just a quick one (I'm in the middle of studying for an exam) so excuse all the typos. I lowball a lot but lower priced properties below the $200K mark. I'm pretty cheeky I offer $30-$40K below the asking price and obviously I get knocked back a lot.

But I've got time on my hands and I've basically drafted a standard letter I fax/email to agents and I tweak it a bit depending on the situation. Its semi-worked for me but I've found in the two situations I've bought there were other factors which were probably more influental in resulting in a sale e.g.

1) the first one i bought was at an auction and I was an only bidder. it got passed in so i could afford to start really low.
2) my 1st property was sold by a dodgey agent who just wanted to sell
3) in both cases a motivated vendor who had already bought elsewhere
4) 2nd property agent was out of town (bondi beach agent selling a potts point property) and priced it low because she just wanted to sell it and the owner wanted to get rid of it. i was one of 2 serious buyers (i attended the first open, it was really inaccessabvle because the tenant wasn't keen on showing the place and as a result less potential buyers saw it).

what i always pull when i buy is i pretend i'm a first home buyer, let the agent do all the talking and explain how property works to me and i pretend i can't afford much. i generally pull this off because i look and am young. i find playing dumb really helps the agents kind of feel sorry for me a lot and take the time to explain things to me.

in the 2nd property i ended up paying $2 less than we agreed the vendor liked me coz i was a first home buyer (the other buyer the agent claims was willing to pay $5K more but the vendor wanted toget rid of it and i was willing to sign on the day whereas the other buyer need 48 hours to do a strata search).

so in summary for me what worked perfect your lowball technique. be patient as u get heaps of knockbacks and u waste a lot of time with lowballing. but sometimes all the factors in the situation are just right and everything works out and all those sat mornings inspecting properties and sunday nights drafting email's / faxes and getting rejected all become worth it

so far for me i reckon i look at about 100 properties, lowball on 30, get told off by agents and ignored for about 25 of them, genuine negociations on 5 before buying 1.

so its a damn lot of effort but i kinda enjoy it now and i find i learn a lot from negociating and reading agents so its all worthwhile to me.

Negotiation How Stupid am I

Well the following shows my inexperience

This was for a property which appeared to be below market value in a fairly popular suburb of Melbourne. I offered x amount which was substantially lower than the asking price (which was already lower than the other properties around).The vendor suprisingly agreed on this price, I put down a tiny deposit but did not sign the contract.

Happy about the deal we were cruising around the neighbourhood an acquaintaince recognised us and spoke to us telling us that the house had various problems and therefore the low asking price (Hot water service, Guttering, Floorboards polishing, Airconditioning,A minor Gas leakage).

Now I approached the agent again and told him that I had gotten quotes for some of the repairs and that I had misjudged and said that my offer was no longer valid but I was willing to negotiate for a lower price and an earlier settlement.

Whats the best way out of this mess that I got myself into

regards

Sunshine