Are You Equipped to Handle Low-Ball Offers in this Real Estate Market? Part I of II

In real estate, an agent negotiates all the time. You negotiate for your clients (i.e. price, allowances, contingencies, timing, earnest deposit, payment of financing/closing costs, personal property included/excluded, deadlines, etc.), with other agents (e.g. referral fees and co-brokerage fees), as well as with third parties (i.e. attorneys, home inspectors, appraisers, title companies, etc.).  Then when you become successful you can even negotiate with your broker (i.e. commission splits, monthly fees, advertising costs, etc.).

In a field rife with competition, it’s important to keep up your credentials, but ultimately, as a local Realtor, my primary goal in every transaction is to protect my clients’ interests. So in December, I was one of the first batch of New Jersey Realtors who earned one of the top new designations in real estate - Certified Negotiation Expert (CNE). The class was very substantive, and contained an analytical framework for many different types of negotiations, in the context of real estate, as well as life in general. Competitive Bargaining, Collaborative Negotiating, Psychology of Buying, and Persuasion Principles were among the topics covered in the course.

As we enter the Spring real estate market season, which analysts are optimistically predicting to be busier than last year, in part due to pent up buyer demand, I am going to share some tips on how to deal with those inevitable "low-ball" offers.

Read on for Part I of this II part series. Come back to this blog next week for Part II.

Picture putting your Maplewood home on the market for $550,000 and you are confident it is well-priced. You are thrilled when you get the call from your Realtor a few days later stating she has received an offer and would like to present it to you this evening. You leave work early to get home and meet with your Realtor and you and your spouse are in disbelief - the buyer low-balled you with an offer of $485,000.

You're stunned and disappointed. If your first instinct is to feel insulted or hurl an epithet - don't!  You can still end up with an acceptable sales price. According to Jeffrey Stanton, a nationally recognized speaker and Certified Master Practitioner in Neuro-Linguistic Programing, the key is being prepared. 

1. Work with an agent who will prepare and educate you. It is critical for sellers to be prepared for the possibility of an unacceptably low offer. This is the job of the sellers' (listing) agent -- managing expectations and emotions -- and too often this particular educational task is overlooked, with uncomfortable, potentially time-wasting results for all.

Most agents wait for an offer and say, 'Oh, shucks, now I'm going to have to present this to my seller’.  Not only should the agents tell the homeowners to be prepared for a low offer, they need to come to agreement on just what constitutes "low-ball."

Each market is going to be totally different. It may be 5 to 10 percent below list price in one market and 30 percent below list in another. That's a unique conversation that has to happen between a seller and their listing agent.

2.  Never take an offer as being offensive or disrespectful. Lowball offers may have any number of motivations, and sellers shouldn't automatically presume they stem from the buyers’ desire to be insulting.

Let me preface this by saying that I work about 60/40 with both sellers and buyers. So I know first hand the "pain" of a low-ball offer from the sellers' point of view. They come across like a slap in the face. But if you are a calm, experienced agent, who knows your marketplace, you can make them work. I love to give the example of a house I had on the market this time last year. The buyer and the agent who wrote the offer were not from our market area and didn’t fully grasp the nuances of our market place. The offer came in 20 percent below the list price. Having listed and sold several of the comparable homes in the area myself, I asked her to provide the comparable saled (comps) she used to come up with the offer. She was completely off the mark with her choice of comps. When I showed her the appropriate comps and provided documentation of our market list price to sales price ratio, she went back to the buyers and in the end we were able to work through a decent compromise. Turns out these buyers didn’t want to be insulting, they were just miseducated on the market.

Other times, a "low-ball" offer may be all the buyers can afford.  It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you're going to say yes or no. Some listings stay on the market for months without any offer.  Some sellers would be happy to even get a low-ball offer! So don't take a "low-ball" offer personally, it’s purely a business transaction and your realtor is there to help keep emotions out of the transaction.

I have stopped discouraging buyers to go in low, except when I know the house is newly listed, well priced and it is clear that there will be multiple offers. In those cases, you need to be competitive... but that's for another blog.

Come back next week for Part II of this blog on how to deal with a low-ball offer on your property in our real estate market.