In: Real Estate News24 May 2011
There is a very “unpolitically correct” quote in the real estate comedy movie called The Money Pit. Tom Hank’s character asks his real estate agent “why would somebody sell a million dollar home for $200,000″. The real estate agent’s response is “Who knows. Divorce, loan sharks, sudden death…the point is that you can benefit from another human beings’ misfortune. It’s the basis of real estate”.
If you ask anyone about stink bids and low-ball offers, you will hear a multitude of different opinions. Some people are disgusted by those who have the nerve to submit a very low offer. The dream of some buyers is to buy a home for much less than the market value. Some buyers put in low ball offers and stink bids because they want to buy a home with a value of $400,000 for only $300,000. Stink bids are often the worst nightmare for real estate agents and sellers.
While these types of offers are not really prevalent in a hot real estate market, they become more popular when sales start to drop and homes remain on the market for more than 2 months.
Why do some buyers get personally insulted by a low offer?
Usually a seller should be able to laugh-off a low offer and politely decline the offer, or counter with a price closer to their asking price. However, if a seller is not able to emotionally detached themselves from their property when they sell, they tend to get personally insulted by a low offer. The frustration is often magnified if the seller has not had a lot of interest in their home. Additionally, if the seller has already bought another home and are feeling the pinch of two mortgages and bank fees, then can get really upset with a low-ball offer.
Stink-bids Can Backfire On Buyers
Stink bids will rarely lead to a successful sale for the “stinkbidder”. Often low offers help make another, higher, bid look more attractive and actually help other buyers. Plus a stink bid can upset a buyer to the point that they will not accept any offers from that buyer, even if the buyer eventually comes back with a good offer. Often, instead of accepting a low offer for $50,000 less, the sellers will simply lower the asking price by $50,000, producing more interest in the home.
How to Successfully Make a Lowball Offer
If you are a buyer who wants to find that desperate seller and perhaps score yourself a great deal, you will need to have a good strategy. You cannot simply fax in some ridiculous offer and expect to be successful. Some tips to give yourself better odds, include:
1) First find out as much information as you can about why the owners are selling. Perhaps talk to neighbours, the agent, the sellers. If you can determine if the sellers need to sell, then you might have a chance to get a good price.
2) Find some statistics to back up your low offer. Perhaps another property sold in the area for a low price. You will need to justify your offer in some way.
3) On your first visits to the property, try to identify items that will need to be fixed or replaced within the next 5 years (furnace, roof, windows, floors, appliances, plumbing). Apply a cost to those items and attempt to provide some rational to your low offer. If you can at least make the seller understand your offer, you might get them to consider the offer. Some “stink buyers” actually use the “questionable” strategy of starting with a higher conditional offer, having it accepted, and then having the home inspection point out a significant amount of repairs. Then the “buyers” ask for the price to be reduced. This leads to tying up the offer so other buyers can’t buy, and frustrating the sellers. Some sellers become so frustrated that they agree to the reduced price.
It is important to note that in Ontario, Listing Real Estate Agents are obliged with the unpleasant task of presenting all offers to their clients (regardless of content). So they must “present” all offers even if they are low-ball offers. Of course, most agents will just call their client and say “there is an offer for X amount of money” and the seller’s response is “no thanks”. End of story.
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