from Florida Realtor Magazine, December 2007 | by Heidi Russell Rafferty | page 16

The Upside to Lowball Offers

Are sellers rolling their eyes at lowball offers? Don’t let them. Here are negotiation tactics that really work.

The $30,000 difference between buyer and seller seemed a chasm. And the seller, an elderly woman with a husband in assisted living, had already accepted a precipitous plummet from her original asking price.

But she was weary from 18 months of buyer inactivity and anxious to move on with her life. Her original price had been $850,000. She recently switched brokerage companies and hired Karen Greco of Michael Saunders & Co. in Sarasota, who encouraged her to drop the price to $690,000.

Now the buyers wanted to pay just $660,000. The seller just wanted to cave and sign the deal.

Greco felt responsible for getting more. She knew the buyers were the perfect fit for the property, a two-bedroom waterfront place, outfitted for their home business. Greco also knew that the land on which the house was sitting was worth a hefty sum.

“I said, ‘I know your bottom line. Let’s go back one more time and get you another $10,000. That’s the premium they would’ve paid for the lot. They really want your home.’ So I ended up getting her that extra $10,000,” Greco says. The house closed at $670,250, or 27 percent below starting price.

Greco hit on a salient negotiation tactic to close the deal: the buyers’ “hot point,” as she dubs it. In this case, the hot point was that most other houses in that development were laid out for families with children, with numerous small bedrooms. The buyers, empty nesters with very different needs, wanted that neighborhood—and that house.

“Even if you’re in an adversarial position and starting with a low number, call the other sales associate to find out: What is it about the house that made them want to put in an offer with all of the other houses out there? Where else can they go if this doesn’t work out? Knowing that, you can work it up to a reasonable number,” says Greco.

A Bitter Pill
Such lowball offers are bitter pills to swallow, but unavoidable medicine for real estate professionals who want to stay in business during the reign of this buyers’ market. But the message is taking a while to sink in.

For the past five years, Florida sellers have been spoiled by remarkable average sales price increases, says Orlando-based Bill Barrett, who offers coaching seminars for real estate professionals. For example, Sarasota alone recorded a 37 percent average sales price increase, while other parts of the country (like sections of Indiana) recorded average price increases of only 2 to 3 percent, Barrett says.

Today, buyers “have immense inventory to review,” he says. “They’re hoping that someone is desperate and will take an offer even lower than the last person gave.” On the flip side, sellers continue to expect huge appreciation from their homes.
Still, it’s possible to survive and thrive if, like Greco, you’re willing to proactively educate and guide both sellers and buyers through negotiations, even those that begin with a less-than-desirable bid. Here are steps to closing the deal, from the moment you discover the listing to the final sale:

Step One:
“Educate and inform: Don’t sell and tell,” Barrett says. At the outset, put your customer on track with market statistics. Price is first. Barrett suggests compiling a chart for sellers that lays out average prices five years ago, three years ago, one year ago, six months ago and today. Inventory is next: how many houses are on the market compared to a few months or years ago? Demonstrate basic supply and demand concepts to your customer.

Be able to explain the list-to-sale ratio, says Darla Furst, a Michael Saunders broker in Sarasota with 28 years of experience. The list-to-sale ratio shows the average percentage that was cut from the original list price in a neighborhood. For example, homes in a given area may be selling for 12 percent below their asking price. Your buyer’s offer is 20 percent below. By knowing the list-to-sale ratio, you can show the buyer that the offer dips further than what local sellers are accepting.
On the flip side, if your customer is the seller, you can definitively say, “The average percentage off the list price has been 12 percent, and their offer is only off 8 percent,” Furst explains.

Mary Crawford, a sales associate at Realty Executives Space Coast in Melbourne, just closed such a transaction because she took the educational approach with her buyers. They had looked at about 40 homes of varying prices and had finally found the one they loved. Crawford pointed out that the list price of $285,000 was already much lower than that of comparable neighboring properties. “I said, ‘The seller is being real aggressive. If you’re coming in low, they won’t even consider it or counter,’” she says.

She successfully persuaded the buyers, and they offered full price. “Let the buyer decide how much they want it,” Crawford says.

Another educational tactic is to help sellers who have no loan obligations to understand they’re still making financial gains, Barrett says. Even though they may not be able to command the prices of two years ago, if they bought their house in 1980 and have had it paid off for a while, they’ll still come out ahead.

Drew Russell, an associate in Furst’s Sarasota office, recently closed such a sale on Siesta Key. The house had originally appraised at $990,000, but the seller accepted $600,000. “The owner had owned it free and clear since the 1970s, and it had been on the market 18 months. That drove the price down. The seller had to adjust expectations to what we thought the market would bear for the property,” Russell says. “We had several lower offers, and this by far was the best offer we had. That’s what made it sell.” 

Step Two:
Dissect the offer. This type of market fuels negative emotions among sellers. So help them objectively view each segment of the offer, Crawford says. She recalls one such case in which she had to work hard to calm a short-fused seller. He’d received a low offer of $180,000 for a home priced at $235,000 after six months on the market.

The house was pristine, and the owner was insulted, to put it politely. Crawford allowed him to rant and then told him, “This is your first offer, so let’s see what we can do with it.”

He still refused to bargain. The buyer came back two months later, offering $20,000 more than her original bid. Crawford dissected the seller’s finances, showing him how mortgage, taxes, utilities and insurance would cost him more if he held on to the house for six more months than if he met the buyer’s bottom line. They agreed to a price of $215,000.

Greco suggests working backward when you’re representing a buyer and are presenting an offer. If the buyers approve, start with the reasons the buyers want the home, then move into any requests they’ve made and discuss the price last. This cushions the blow, she says.

Her speech goes this way: “They’ve chosen your home, and let’s see if we can make it work. Forget about the number. Let’s talk about the components—what you like best—and then revisit the price.”

Step Three:
Put a human face on it. When presenting low offers on behalf of buyers whom you represent, with the buyers’ permission, submit a letter and supporting documentation from the buyers that not only outlines any pricing issues but also gives the seller a sense of why they like the house, Crawford says.

“I’ve had sellers say, ‘This offer is ridiculous,’ and all I say is, ‘This is what they want you to consider. They’ve done their homework. They’re real buyers who aren’t playing games.’ Most of the time, they’ll come back with a counteroffer,” she says.
She recently represented a couple in their late 20s on a tight budget. They’d been living on a houseboat, but they “needed to put their feet on the ground” for the sake of their young son. They found a tiny house with a lot of promise listed for $105,900, but it had not been maintained well. It had been on the market about two months.

Crawford wrote a letter with the buyers’ permission identifying needed upgrades and a list of costs, which had been arrived at through a visit to Home Depot. She also explained how much the buyers liked the floor plan and the house itself, as well as their personal family need to have a home for a small child. The seller, understanding the market, was willing to come down—the couple bought the house for $86,000. “They were happy as clams!” Crawford says.

You can also humanize the seller so that the buyer will be more amenable, Furst says. This requires walking a fine line. For example, if you’re representing a seller, you can’t necessarily disclose personal motivations for selling like divorce without the sellers’ consent, Furst says.

Taking their cue from the media, which has conveyed the idea that the buyer is king, buyers in this market may become arrogant and simply demand to have it all—even when presented with the human side of the seller. As the buyers’ agent, you need to prepare them for the possibility that it may not happen, says Furst.

“Let them know before the offer is even presented that negotiating is still about leveraging. They may have to give up asking for the patio furniture if they’re expecting the seller to accept their low offer,” she says.

“It’s still an emotional situation for the seller, particularly if he is in a desperate situation. For him to lose all in the negotiating is a blow financially and, ultimately, to his ego. Then, it is a game. And no one—buyer or seller—likes to lose,” says Furst.  

Heidi Russell Rafferty is a Kentucky-based freelance writer.