Realistic Expectations About Low-Ball Offers
February 26, 2013
How often do low-ball offers work? Let’s ask it a different way, “How often have buyers been able to get a big discount off of the list price?” In a good market? Very rarely. In a weak market? More frequently, but not as often as you might think.
Let’s consider the Fairfield County, Conn. market for single-family properties. In 2007, which was a reasonably strong year, 74.4% of single-family sales were for 95% of the list price or higher. And 19 out of 20 were at or above 90% of the list price.
So, in 2007, buyers got more than 10% off only 5% of the time, and got more than 20% off only 0.5% of the time. There were few big discounts.
The market in 2009 is a somewhat different story. Sales and prices were way off their peaks by then and inventories were high. Still, 83% of sales were discounted 10% or less. But 6.4% of buyers were able to get 20% or more off. Percentage-wise, that’s about 12 times as many as in 2007.
There was a lot of uncertainty in 2009. Buyers who had cash or could get credit were in a strong position. Also, since prices had dropped rapidly since 2007, there were undoubtedly sellers who had not priced appropriately.
Things have recovered a bit since 2009 and the sales-to-list numbers reflect this.
Nearly 87% of properties sold within 10% of list price. But 5% of buyers were still able to get 20% or more off.
What this says is that the real estate market is reasonably efficient and that big bargains are not commonplace. However, there are cases of mispricing and various special circumstances (problems uncovered in the building inspection, storm or water damage, stressed sellers, etc.) where significant discounting can, and does, take place. And, there are more of these situations in weak markets than in strong ones.
So, if you’re going to make a low-ball offer and get it to work, have your case ready as to why the property is over-priced. And be prepared to do a lot of shopping to get an exceptional discount. That being said, every percentage point may be worth thousands or tens of thousands of dollars. It pays to know the market so that when opportunities present themselves, you can pounce.
But keep in mind that even in the most buyer-friendly markets, most sellers are going to be well-informed and price near the market. If you’ve done your homework and are comfortable with the deal, don’t be upset if you don’t get a huge discount.
Paul is CEO of REsource Analytix, which provides the charts and statistics on Raveis Local Housing Data and the Local Housing Newsletter. He holds an MBA in Statistics and Operations Research from New York University and founded REsource after a successful career consulting and developing business intelligence applications for companies including UBS, Georgia-Pacific and Pfizer.