“Death By a Thousand Cuts” (Or Raises)
No home Seller, quite understandably, wants to leave money on the table.
No Buyer wants to overpay.
Which is why it can be so tempting to initially list for too much (Sellers) or offer too little (Buyers).
Big mistake.
That’s because what often happens next — and by “next,” I mean, “several months later” — is that the would-be Buyer or Seller ends up getting a worse deal than if they’d chosen a more realistic starting point from the get-go.
That is, if they get a deal at all (often, during the intervening time, Buyers move on to more realistically-priced homes, or, Sellers accept an offer from more reasonable Buyers).
Negotiating #101: ‘Don’t Compromise Your Credibility’
Just such a scenario played out with one of my listings last year: a well-priced, well-marketed home offered for $500k (no names or addresses, of course).
After less than one week on the market, a prospective Buyer with serious interest showed up.
A lowball Buyer.
After doubling back for a second showing, reviewing the city point-of-sale inspection, and generally getting comfortable with the home and neighborhood, the Buyer offered . . . $375k.
The Seller instructed me to (politely) reject it.
Over the next 10 days, the Buyer successively raised their offer to $400k, then $420k, then $440k.
Each time, my client instructed me to respond with a polite, “Thanks for the sweetened offer, but we’re not prepared to reduce our price so substantially, so soon after coming on the market” (and with strong interest from other Buyers, I hastened to add).
Finally, the Buyer raised to $460k — but was adamant that that was their “absolute, highest — and final — price.”
My client and I looked at each other and simultaneously said, “Yeah, right!”
One week later, the would-be lowballer and my client signed a deal — in the low $480’s.
Seller Dynamics
The same dynamic often plays out — in reverse — for Sellers who initially list for too much.
Instead of their home standing out relative to its peers, it suffers by comparison.
As a result, it languishes on the market.
Eventually, a price reduction is in order.
However, assuming the initial list price wasn’t just high but much too high, a standard 3% – 5% price reduction barely dents the problem (unsurprisingly, the same Sellers who are most inclined to significantly overprice usually are also the most loathe to meaningfully reduce their price).
So, the (still-overpriced) home continues to sit.
“Wash, rinse, and repeat” (as they say).
Lowball (Il)logic
If anything, the risks to prospective lowballers are greater than to overpriced Sellers (who can occasionally be bailed out by a rising market).
That’s because a good listing agent (representing the Seller) will leverage a lowball offer . . . to get a better one.
It’s also the case that a would-be lowballer arguably makes things worse if, instead of raising their offer incrementally, they dramatically raise it in one fell swoop.
In effect, that’s tantamount to admitting to the Seller that their first offer was an attempt to steal the home.
Sellers — especially long-time Sellers who are already emotional — are apt to react badly to such tactics.
P.S.: when is lowballing fine? When the Seller is a bank (the home is a foreclosure).
See also, “What Lowball Offers Really Accomplish”; and “Nurse! I Need a Price Reduction, Stat!”
