Probably the most painful part of buying a home today is the price you pay—which has shot up over the past year by 16.6%, to a national median of $449,000.
But there’s also good news for homebuyers still hanging in there: Houses that were once snapped up in record time are starting to linger longer on the market. The number of homes with price cuts increased to 19.1% in July of this year, compared with 9.4% at the same time last year.
In other words, the red-hot seller’s market of the past two years is at long last cooling off, and some sellers fearing they’ve missed the peak of the market are desperate to unload their home before things get worse. This means some brave homebuyers might find themselves in a unique position where they could (gasp) offer below the list price—otherwise known as lowballing.
Why lowballing is on the rise today
“Offering below ask today had almost become a social faux pas,” says an agent with Coldwell Banker Realty in Stuart, FL. But the frenzy of homebuyers competing with one another appears to be over.
“No more hundreds of buyers flocking to your Sunday-fun-day open houses in droves like it’s a free Rolling Stones concert,” he says. “What’s changed post-pandemic is that buyers are expecting truth-telling inspections again, and they are not buying sight unseen or overpaying any longer.”
In other words, buyers just aren’t putting up with home sellers’ inflated prices anymore. And one way they communicate this line in the sand is with a lowball offer below the list price.
Yet home seller expectations might not have caught up with this harsh reality yet, so lowballing today takes more finesse than it did in the past. Here’s how buyers should approach the fine art of lowballing in today’s market so that sellers play ball.
Why many homes today are overpriced
While lowballing might seem ballsy, it helps to remember that a home’s asking price is determined by a highly biased decision-maker: the seller.
Sellers, after all, are emotionally attached to their home, and not always acutely aware of today’s market conditions. While a good listing agent will always provide the data and research to help sellers land on a reasonable list price, some sellers choose to go above fair market value, hoping for the best.
Why would sellers overprice their home? It could be because they’ve heard their neighbors brag how, just a year earlier, their home sale was deluged with buyers who offered insane sums over the asking price. Given the insane seller’s market that was sweeping across the country, sellers might presume they could fetch the same volume of offers today.
The market has changed significantly, and while sellers might cling to the hope that they can luck out with that rare buyer who adores their home as much as they do and will pay any price, they’re likely in for a rude awakening once the offers roll in.
Buyers, after all, rarely see a home the way sellers do—and they definitely don’t want to pay more than a property is worth. As the buyer, your offer should be determined by the current housing market, the condition of the house, and what you’re comfortable paying each month. You should already be clear on your housing goals and how much you can afford before you even start looking.
When to lowball on a house
Lowballing below the list price makes sense in a few scenarios:
- The house has been on the market for a while.
- The house is overpriced for current conditions.
- The house is in poor condition and will require extensive repairs.
- The house has issues like a bad location or a strange layout.
- The sellers are eager to sell and have a tight timeline.
The more information you can gather on a house and the sellers’ history, the better you can assess whether lowballing will work.
“If a home has recently had a price reduction or has been sitting on the market for a long time, you should have your agent find out why,” says Chase Michels, a real estate agent and partner at The Michels Group in Downers Grove, IL. “What motivation do the sellers have? If timing is important to the sellers, then that is a fantastic opportunity to lowball the home.”
The most important step before making an offer below the list price is having your agent talk to the listing agent in an attempt to determine the sellers’ goals.
“Lowballing is a good idea when there is a sense from conferring with the seller’s agent that a buyer has significant leverage in a situation,” says Ian Katz, a real estate agent with Compass in New York City.
The sellers might be motivated to sell for a number of reasons, including a need to sell in a timely manner for a job or major life event. Or they may be kicking themselves for missing the peak of the market, and eager to close the deal before home prices may drop even further.
“In the process of engaging a potential home and seller, you and your [real estate agent] might learn as buyers that the seller is desperate to cash out and close by, say, the end of the month,” says Hanson. “Real estate offers and acceptance are a poker game that must be played every single day pending the acute situation of the property and seller.”
By gathering such valuable intel, Jeff Lichtenstein, president and founder of Echo Fine Properties in Palm Beach Gardens, FL, recently had a client who succeeded with a lowball offer.
“We had a renter in the house who kept it in awful shape,” he says. “This person was a hoarder and it was difficult to show. The seller knew this and just wanted it over. In this case, we lowballed and got it accepted.”
When does it not make sense to offer less than the list price?
There are scenarios in which a lowball offer just doesn’t make sense:
- If the house was listed just under a week or two ago and has had tons of views and interest.
- The house is priced correctly for the current market conditions.
- The house is in perfect condition and will not require repairs.
- When the market is hot and the inventory is low, which means there is greater competition for a house.
“If the price is at or below market value and/or the listing has just hit the market only days ago and/or the listing already has one or more qualified offers or some combination of these factors, a lowball is a terrible idea,” says Katz. “It is likely not only to receive no response but it also may register you as a buyer who won’t be trusted to be serious should you decide to increase your bid.”
Instead of making an offer that could be rejected outright by the seller, ask yourself how badly you want the house and if there are other aspects you are willing to negotiate on instead of the list price. They could include the following scenarios:
- Offering a shorter closing timeline
- Asking the seller for credit toward closing costs
- Asking if the seller is willing to leave the appliances
- Asking the seller to cover the cost of a home warranty
How to lowball on a house—and get sellers to accept
The best strategy? Always come armed with data that keeps your offer grounded in reality, says Katz.
“Present comps and give grounded rationale,” he says. “A successful lowball offer needs a corroborating pitch focused on presenting both a solution to a seller’s acute problem … and also evidence for your bid: relevant comps, inventory analysis, days on market vs. average analysis, etc.”
Katz says this strategy paid off for one of his clients in summer 2020 in New York City. Katz learned the seller was moving due to a job relocation and listed the property at a measurable loss from the 2015 purchase price.
“We used this info to bid 13% below ask and settled on a price nearly 10% below ask,” he says.
Other things to keep in mind when making an offer below asking price:
- Have your financing in order so you can include a mortgage pre-approval letter from a lender.
- Consider minimizing contingencies. But be careful which contingencies you remove.
- Be prepared for a counteroffer and how you will handle it. Consider including an escalation clause.
- Increase the amount of your earnest money deposit.
