Why Low Balling Your First Offer on a Home Can Cost You
Get a Pre-Underwritten Mortgage Instead
We’ve all heard the expression, “Penny wise, pound foolish.” Like all clichés, the expression is overused because it makes such good common sense. The objective? Don't nickel and dime yourself out of the new home you want.
Applied to the home buying experience, I find this caution rings especially true. You may believe you’re saving money by pitching your first offer on the low side, but it’s essential to remember that in any bargaining situation, either party must be happy to walk away. The danger is, of course, that there’s no guarantee of a second chance. Especially here in the Bay Area where demand remains strong.
Like I always say…it all comes down to strategy. The best strategy is to get rock solid pre-underwrite on a mortgage instead of low balling an offer.
Avoid Alienating the Seller
The seller has a good property; you both know it or you wouldn’t be making an offer at all. What’s more, a well-informed seller has taken time and care to settle on a reasonable asking price. You don’t want to risk having the seller slam the door on a low ball offer, since that’s a dead end for everybody. Negotiation can still happen if your first offer is not ridiculous and with pre-approval or underwrite, you’re in a strong position.
Know What You Can Afford
As a mortgage banker, I’m here to help you understand exactly what you can afford. We will have figured out the right down payment, cash reserves, borrowing, debt and all pertinent aspects of the overall financial picture related to a home purchase in advance (very important in this market). A pre-underwritten mortgage can make all the difference.
Understand the Definition of Low Ball
There’s no one definition of low ball that fits all situations in Bay Area real estate. If an asking price is too high against comparables, a low offer might represent a deeper drop. For homes that are priced to sell, a low offer might be as little as 5% off asking. In a hot market with short supply and homes moving into contract within a matter of days, anything less than asking is a low ball offer.
Trust Your Agent’s Advice
Your agent has seen offers rejected time and time again. So have a conversation about your timing, deal breakers, fixtures and fittings, expiration date—as well as the price—and trust your agent. You have chosen this agent carefully for their experience here in this Bay Area market, or we have paired you with one for the exact same reason.
Ask Yourself, Is it Right For Me?
Ask yourself: “How many boxes does this property check for me and how will I feel if I lose it?” If your head says you wouldn’t mind, let this guide your offer price. If, on the other hand, your heart says you’d be bitterly disappointed, let that be your guide. How many properties have you seen?
When you’ve seen a good number and determine that this is the one, it’s far better to secure it before a bidding war ends up costing you more than a solid first offer.
There could be a long wait time before another home that interests you comes on to the market, and a low ball strategy will play out the same way over and over. Meantime, prices strengthen.
A tip: If you feel it’s too early in the house hunting process or you have reservations about a particular property being the right one for you, don’t lowball your offer to compensate. Under these circumstances, simply don’t make an offer at all and move on. As they say here in our market, “on to the next!” Reach out if you would like to discuss these strategies and others for this Bay Area market! Email me.