Making a low-ball real estate offer is one strategy for getting the best deal possible. However, your low-ball offer may also offend the seller and shut you out completely. This article well teach you how to make a low-ball real estate offer and get it accepted.
To make a successful low-ball offer, you need to have both courage, empathy, and good negotiation skills. Courage is needed for you to submit a low-ball offer. Empathy and kindness are needed so you don't offend the sellers. Finally, good negotiation skills are needed for you to close.
Always On The Property Hunt
One of the reasons why I'm always on the lookout for real estate opportunities is because every once in a while, a property will come up that seems mis-priced or poorly marketed.
For example, in 2014, our current primary residence was being marketed by a retired, out-of-town agent who only got the listing because he was a childhood friend in the 1960s. He had no pictures on the Multiple Listing Service (MLS) and only had a simple one-page, black and white flier.
Because he was not from the area, he didn't have a network of other agents to blast his listing to. All he did was hope and pray someone made him an offer in an unknown neighborhood.
So I made a low-ball offer that ultimately got accepted after one counter. In real estate, money is often made on the purchase, not on the sale.
It turns out, there was another buyer who was willing to pay $110,000 more than my offer, but I had already sealed the deal with an old fashioned handshake. I know this to be fact because the agent who helped sell one of my SF rental properties in 2017 turned out to be the competing buyer's agent for my existing property in 2014!
The real estate market is so much less efficient than the stock market. If you are extremely diligent at looking on your own, you should be able to find some deals. And most recently, I found an off-market listing by luck that could be a great investment.
How To Make A Respectable Low-Ball Real Estate Offer
With the invention of Docusign, it has become extremely easy to submit multiple offers quickly. If you work with an agent, you can submit an electronic offer in under five minutes after she fills out all the basic offer details for you. All you have to do is e-sign with your phone. There is little downside to submitting an offer nowadays.
In 2016, I missed out on buying a property that sold for $150,000 below what I was willing to pay. After that lost opportunity, I decided to pay more attention to my neighborhood real estate market.
Here are the keys to making a low-ball offer without insulting the seller. The goal of your low-ball offer is to not get it accepted at face value. The goal of the low-ball offer is to get the negotiation started.
1) Understand the neighborhood comps.
It is vital for you (and your agent) to know all the recently sold comps in the neighborhood over the past 12-24 months. You must then choose the comp that sold for the least on an absolute price basis and a price/sqft basis. This comp will act as your reasonable anchor for submitting a low ball offer, even if the comp isn't like-for-like.
2) Understand the seller's background.
All good negotiators will try and find as much background information about the seller as possible. You should find out the following:
- Male or female seller
- Individual or couple
- Divorce sale or amicable sale
- Is the seller currently living in the house
- The size and type of mortgage
- Trust sale or regular sale
- Length of ownership
- Has the seller already bought another property
- Is the seller relocating
A savvy agent will keep this information close to her chest. However, you should be able to extract at least 3 – 5 points through normal dialogue.
Don't be so direct and ask each point one-by-one. Instead, come up with some introductory questions like, “Where is the seller moving to?” or “How long has the seller owned the property?” From there, you can expand your data gathering.
One of the key benefits of working directly with the listing agent is that you'll be able to more readily ascertain all this information. After all, the listing agent is motivated to make you comfortable enough to put in an offer so she can earn a double commission.
3) Understand your city's listing culture.
In some markets, like San Francisco, real estate agents tend to list 5% – 10% below market price to drum up demand. The goal is to create a bidding war where one overzealous buyer overpays.
I remember putting in an offer for $1.48 million for a property in early 2014 when the asking price was $1.19 million. I felt kind of foolish submitting an offer 23% above asking price, but I knew they were underpricing the property. Further, I asked the selling agent to represent me. It turns out, the winning offer was for $1.8 million! I wasn't even close.
Many cities seem to have a listing culture that tends to list at market price or slightly above market price because they know buyers will try to negotiate them down. The result is a final selling price that is usually lower than asking.
It is easier to submit a low-ball offer in a city with a listing culture that tends to list at market price or slightly above. But even in a market that tends to underprice its properties, you have every right to submit a full offer asking price, despite knowing the seller is hoping for much more.
4) Write a nice letter.
Even if you use my Spray N' Pray methodology where you're submitting multiple low-ball offers at a time, you should still come up with a generic letter that discusses how amazing the property is, a little bit about yourself, and how you plan to cherish the property forever.
But if you really care about a specific property and want to ensure that the seller isn't insulted by your low-ball offer, you must write as personal and heartfelt a letter as possible.
The goal of the letter is to not only make a connection, but to also make it clear that your lines of communication are open. Once you make a seller feel insulted, there's little chance they'll come back to the negotiating table.
Long-time owners of a property like to know that they are selling to someone who plans to own the property for a long time as well. Flippers like potential buyers to appreciate the work they've done on the property to make it better. Pointing out the details is a great way to make a flipper feel good.
Do not underestimate the importance of recognition. Think about all those times you got a laudatory e-mail from your boss or colleague at work for a job well done. I bet it felt great.
5) Hint that you're willing to go higher.
Your goal as a master negotiator is to anchor at the lowest price point possible without insulting the seller and then meet somewhere in the middle. The way you hint that you're willing to go higher is through your letter and/or agent. Phrases such as, “We're looking forward to hearing from you,” or “Please let us know your thoughts,” are effective.
Selling property is a super stressful process because you have so much to lose – your pride, your time, and your money. Therefore, even though a low-ball offer won't be what your seller wants, if you submit a low-ball offer properly, you will make the seller feel better knowing that at least they have something to show for their efforts.
By meeting in the middle, you will make the seller feel good knowing they got more than the initial offer, even though that was your plan all along.
A Low-ball Offer Was Once A Great Offer Years Ago
One of the best situations for low-ball offers is if the seller has owned the property for a very long time. I'm talking 30 years or more. The reason why length of ownership matters in this case is because sellers are often anchored to much lower prices.
Recall how some parents continue to treat their grown adult children like grade school kids? It's because, in these parents' minds, their children will always be “daddy's little girl” or “mommy's precious boy.“
You know how some old bosses still can't give you respect, despite you going on to become a boss at a larger firm? It's because, in the boss's mind, you'll always be the intern or the grunt. This is why it's often beneficial for employees to job hop and reset their image.
Many sellers who've owned for decades can't believe the market has risen so much. As a result, they might feel guilty for trying to sell to someone who has made a connection at such a high price. In other words, as a buyer, you have much more wiggle room to negotiate, especially if the seller didn't even buy the property in the first place.
For example, the property I'm interested in buying was sold for around $100,000 circa 1950. The listing agent is thinking of asking $1.99 million. Even if I submit a low-ball offer for $1.5 million, that is still a large absolute price gain.
So that's what I did. Please know that when it comes to real estate, money is often made on the purchase, not on the sale.
Submitting My Low-Ball Offer With Confidence
Here's what I found out about the sellers:
- The sellers of the off-market property are two siblings in their early 70s.
- The property is in their mother's trust and they are the trustees.
- The sellers inherited the trust.
- The siblings grew up in the place and have fond memories.
- The mother lived until 104 and peacefully passed away in hospice care.
- The property also has a reverse mortgage of roughly $500,000. The reverse mortgage is a way to pay for living expenses.
- The mother had a total of five children.
- The sellers preferred to sell to a family and not a foreign investor or local flipper.
- While I visited for a private showing, one of the daughters called to speak to the listing agent. Interestingly, the listing agent put the conversation on speakerphone a room away. I was able to hear the entire dialogue because the listing agent kept coming in to check on me. The daughter was anxious to sell the house and pay off the mortgage and her mother's outstanding liabilities. She was thrilled to hear that I was interested and that I had a little one.
Even though I knew the listing agent wanted to list for $1.99 million or $765 a square foot, I submitted an all cash offer for $1.5 million or $576 a square foot. The current price per square foot of a home in this condition is roughly $800. Regarding pricing, I hopped into my Delorean and went back 10 years in time.
Always Spend The Time To Connect
In my offer, I included a picture of my family and a real estate love letter. You can click the link to learn how to write one. You may also want to learn how to write a real estate breakup letter if things start getting a little hairy.
When so much is at stake, spending time connecting with the seller is a good idea. A real estate love letter helps lessen the sting of your low-ball real estate offer. While a real estate breakup letter helps make the seller realize what he or she is missing if they lose you.
The official negotiation has begun!
Alternative Real Estate Investing Options
If you don't want to bother going through my tactics of owning physical real estate, then consider investing in real estate crowdfunding to keep things simple. Fundrise is my favorite real estate crowdfunding platform for non-accredited investors.
They were founded in 2012 and have consistently been one of the most innovative companies I've come across. Fundrise now manages over $3.5 billion in assets under management and has over 300,000 clients.
If you are an accredited investor, take a look at CrowdStreet. It is real estate marketplace that primarily focuses on secondary metro markets. These 18-hour cities are cheaper with higher cap rates and higher growth than the expensive coastal cities.
How To Make A Low-Ball Real Estate Offer Is A Financial Samurai original post. Join 60,000+ others and sign up for my free weekly newsletter. Financial Samurai began in 2009 and is one of the largest independently owned personal finance sites in the world.
25 thoughts on “How To Make A Low-Ball Real Estate Offer And Get It Accepted”
Sam, as always, great post. I’m a long time follower of your blogs and appreciate your content. I am a Broker-In-Charge and part owner of a real estate firm here in Charlotte, NC. I agree with a lot of your content and advice, however in certain markets like ours in Charlotte, the local MLS frowns upon personal notes to the sellers and as agents are advised to refrain from submitting them. We now need to get more creative with our offers instead of pulling on heart strings. Also, something else for folks that are new to real estate investing, I tend to think its unwise to engage in dual agency as a buyer. Here in NC, the mojority of sales, I see the seller pay the commission to the buyers agent so buyer representation COULD be little to no money out of pocket for 100% representation for the buyers. For savvy investors like yourself, going dual agency is a great way to gain information about the sale that you would otherwise rely on your buyers agent to obtain. This takes experience though and you should be very confident in understanding your states real estate contract offer to purchase. Otherwise, I highly recommend a buyer to hire an experienced real estate agent that knows the area well. Also Sam, if you are interested in investing more directly in the sunbelt, do a quick search for Roofstock. I think you would like this model and benefit from it.
Wow, your point about needing to know about the sold comps from the past one or two years is some sound advice in order to have an idea on how to make an offer for a property. After years of flipping houses, I now think it’s about time to start investing in luxury real estate and I’m going to need to improve my negotiating skills for that. I should also get into the habit of getting some basic background information about the seller.
I am just getting started with real estate investing. I have helped with lots of rentals for other people in the past.
Recently I found several properties (Multi-Units)
i would like to rehab and hold.
I have a few investors who would help with 80% got any tips on how I can
raise the 20%?
By creating an amazing value proposition and Investor cannot refuse.
Agree about talking to the listing agent directly. But don’t yield to giving double commission. When we bought our house years ago, I told the listing agent we were representing ourselves and didn’t buy his BS about us needing a buyer agent (he said he could do it himself for the buyer agent commission or give us a referral). I told him he could get $1k extra to be a dual agent or I’d find some dolt who just got his/her license and would do it for practically free to get the experience. He took the deal quickly and even drove out to the restaurant me and my wife were having dinner at to sign the paperwork.
That’s great! Yeah, some realtors are willing to just simply lose the commission altogether than cut commissions. It’s frustrating for buyers and for sellers.
Thank you Sam for sharing the tactical steps used in this process. I’m new to real estate investing and it’s helpful to read about the specifics of a lowball strategy. Good luck in your negotiation!
Thank you! It’s been a success so far. I’ll post some updates shortly.
Good luck Sam! I love your honestly. You didn’t say ‘I went below asking’, you clearly said you low balled, which is correct for that kind of property in that kind of location.
Golden Gate Heights is a beautiful, serene, peaceful neighborhood, and surprisingly few homes come onto the market.
Are the current homeowners still doing a remodel? I’m assuming another benefit of accepting your offers saves them a bit of money of the planned light remodel.
And needless to ask, as-is offer with no contingencies?
Thanks! I’ll be doing the remodel with a crew I used in 2015. They are inexpensive, but just flaky. And I know exactly what to do.
As-is offer with no contingencies. But I’ve already inspected everything top down with a contractor friend and know what I’m looking for.
Related: 10 Warning Signs Before Buying A House
Whooo Hoo…Super excite for you and to see how this turns out. I used the reverse steps to just help my friend sell something in the Midwest. I am now having a good list of properties in the Mission with potential. Most of them are tenant occupied so that is a wrinkle I have to work through the lawyer and agent.
I do hate though that SF does not permit Prop 13 transfer from an external county like a few selected CA counties.
Getting Prop 13 transferred would be SWEET! That would immediately boost the property market demand by 100%+ and cause prices to skyrocket by 100% as well.
BTW, saw some interview or article about you somewhere on a bigger publication. I was like, hey, I know that guy. Cool!
Thanks Sam. Guess people now are more interested in the struggles of people living in HCOL areas. I wish I had put some ads before the Forbes interview to pay for my blogging hobby :-)
We should catch-up one of these days!
Hi Sam, Just started following your blog a couple of months ago – great stuff! I am new to the whole FIRE movement. Can you please write a post about ADU’s and whether you would / would not recommend them? If you do, how big / how many bedrooms, etc. and how you would rent it out (AirBNB, college students, etc.?) We bought a house in the South Bay a couple of years ago and are debating whether we should build an ADU in our backyard, and don’t know where to start. Thanks!
In the meantime, check out this post: The Best Way To Make Money In Real Estate Is To Focus On Expansion
Best of luck. I’m not even sure there are any $576/sq foot properties anywhere near me (and perhaps the entire state) but I guess that is a bargain for sure in SF.
I am curious, are these posts contemporaneous or is the conclusion already known and this is more of a recap with the eventual reveal? I think it would be awesome if it was the former as we can go along the journey with you.
Yeah, the average price/sqf in SF is closer to $1,000. So I’m way below average here. But I don’t expect to get $576. That is the opening salvo.
It is all about local market supply/demand. Perhaps a sales by owner circumstance. RE agents commission kills the deal.
You’re absolutely right on all five points. We purchased our first home right after college, from a long-time owner, in 2001. Our realtor coudn’t believe the deal we got. We shared our intention of living on the property for sometime, and will keep the property in the family. We’ve since sold the property to a family member at a very nice discount. We also purchased our 2nd property from a long-time owner with a steep discount. We’re still living on the property.
Awesome! Isn’t it great to get a good deal and then live in your good deal for years? It’s like the gift that keeps on giving!
Wow sounds exciting! Hope it works out. Makes a lot of sense to know the local market and use that knowledge to craft your bid. Finding non local agents in SF is a huge advantage as well as finding something off market with motivated sellers.
Wise list of steps on submitting low offers and utilizing personalized letters and researching the seller’s background. I also remember that spray and pray post – that’s one of my favorites!
Thank you! I’ve gotten so busy recently but I failed to do more spraying and praying. But I will in 2020 because I think there are so many opportunities now.
Great Post Sam,
I’ve been reading your blog for several months now. Your drive and passion for real estate is really inspiring.
I’m 31 with 2 kids and live in Vancouver BC with a plan to buy 10 properties and achieve FI around 40. I’ve got 2 so far and 2 more pre-sales closing early next year. My plan is to go for small studio apartments in prime locations due to financial constraints and use equity as the down payment for the next place. I’m curious, have you ever considered getting a real estate license and representing yourself instead of using a realtor?
Wow, 10! Make sure you are methodical in your investments. You don’t want to invest too quickly and too concentrated. I highly recommend spreading your investments around, especially since Vancouver is so expensive, and there are not huge industries with huge companies that are paying big bucks to support those prices.
I definitely thought about getting my real estate license. It would seem like an easy career opportunity switch for me. But I found that I enjoy making money online more. Therefore, that’s where I’ll spend most of my opportunity and time.
We just went into contract 2 night ago on a 1.35M house. 3B 3B / 3200 square feet. The house is nice but without a view (has view of redwood trees, not a lake / ocean or mountain). We plan to do small renovation to make it a 4 or 5 bedroom house which would suit our needs more. Comp on the market: 1.325 (sold June 2019), 1.475, 1.85 respectively. The lay out of our house isn’t great but we figure we can make it work by a bid of remodeling. Wondering what you think?
Regarding lowball offer, we initial submit 1.25 and also did a letter, not accepted. A month later we decide to bump up 100K since inventory is limited and we are not sure if we will get a better deal later.
Your other article is interesting about buying property every few years. I wonder how you make the financial for your ocean view property work when you move to Hawaii? It seems like the rent would not cover the cost (although if you are paying all cash that’s no problem), you have more than 2M vested.