Are you ready for some real excitement? Welcome to the world of Lowball Offers - also known as "Bottom Fishing." Making a seriously low offer can result in a great deal if you know what you are doing. If not, it is a big waste of time at best, and a risky financial decision at worst.

Lowball offers require a agressive approach in order to succeed. They are not for everyone -  but for experienced investors who know what they want, there is the chance to catch The Big One.

1. Be flexible on your choice of homes and neighborhoods. Pick a neighborhood with plenty of properties to choose from. On Oahu, the inventory of homes has declined over the past 2 years from its peak in early 2009. Many neighborhoods have a small selection of homes, but others have ample choices (hint – ask your Realtor for help here). Remember that if there are not very many "fish" you will need to cast your net further to catch anything.

2. Find a motiated seller.  For example, seek out vacant properties, and properties that have been on the market for a long time. Bank-owned properties usually have motivation to sell, even if they are a pain to deal with. Short-sale sellers are often ready to deal, since they won’t get anything anyway at the close of the sale. Company relocation programs sometimes reward owners who sell quickly. If you have cash or can get private financing, choose a property that cannot be financed, such as a condo with low owner occupancy, or a leasehold property. You will have very little competition in this case. 

 

But some sellers have unrealistic expectations, and won’t consider even a reasonable offer until they have had several low offers. In those cases, it benefits you to wait until time has “softened them up”. So don’t leave the negotiating table on a sour note, since you may want to try again later.

3. Know the market in the neighborhood so that you can justify your offer price - even if you offer on the low side of the past sales. Ask your Realtor to write a cover offer to that explains your lowball offer so that you don’t insult the seller – or write one yourself. For example, if the land is smaller, or the home needs more work or is not as spacious, or has no renovations, you may have ammunition to justify offering 10 - 15% below the asking price. With median SF home prices on Oahu still hovering close to $600,000, homes much below that are in demand. Higher priced homes will have less competition.

4. Learn the seller’s needs, so that non-price issues are advantageous to the seller.  For example, allow the seller to rent back for a while if needed, or wants to close on a particular date. And don't ask the seller to give  you any "freebies" in the form of financing subsidies, or leaving the furniture or bird bath. It muddies the waters and can create unneeded conflicts.

5. Beef Up Your Deposits. You can make your earnest money non-refundable and authorize release of it immediately to the seller – but only you are a bold experienced buyer and you know that you want to go through with the sale. That kind of commitment is hard for a seller to resist.

6. Attach a strong mortgage pre-approval letter  – preferably from a large well-known local lender. If you are making a cash offer, or have lots of down payment, include Proof of Funds to close. Don’t make the seller beg you for it later, it is standard procedure.  A real statement, or signed leter from  your banker usually works. Confideintial account numbers can be blocked out – but a contact name and phone number at the bank is essential.

7. Shorten your contintencies, and eliminate unneeded ones. Get a good home inspector within 3 days, so if you have 2 days thereafter to decide so you can get youproperty concerns answered within about 5 days.  This is very commonly done on the US mainland, but rare here on “Hawaiian time”.

8. Accept the home As-Is. If you have already know that it is a fixer upper, don’t expect the plumbing drips to be fixed or the electrical outlets to be up-to-date. Take all of that into account in your offer price, and don’t nitpick later unless a big issue crops up that was not known or disclosed earlier when you made your offer.

9. Schedule the closing as early as possible - your offer will stand out even if the price is low. For some sellers, just getting the deal done ASAP is a big priority, even if they won’t get what they hoped for.

10. Expect to pay a fair price for the right home. No matter what you may have heard, discounts of 15% or more below similar sold properties are quite rare. And your discount is irrelevant; it’s the actual sale price that counts. Some homes are a steal at full price, others are overpriced even with a big negotiation down. Know the market so you will know what makes a great buy.

Common Deal Killers:
1. Itemize all the possible shortcomings of the property and attach it to your offer to make the seller feel bad
2. List all the lowest nearby sales - even if they’re not really all that similar
3. Scowl a lot - and adopt a "Take it or Leave It" approach
4. Don’t use an agent- write it up yourself, or ask the seller’s agent to do it for you in spite of the obvious conflicts 
5. Throw offers at every possible property, whether you have seen the property or not
6. Don’t worry about the offer details, just see what sticks

Reality Check - Negotiating is a fine art, and requires preparation and experience. Home buyers will benefit greatly with a seasoned real estate professional by their side. It costs nothing, as your Buyer’s Agent is paid by the seller. So why not use the services of a seasoned Accredited Buyers Representative (ABR)? ABRs have made a commitment to helping buyers get the lowest price, and have studied the negotiating techniques do the job.

 If you succeed in a bold and brave offer, your risks will be rewarded. You can look forward to the best price and a happy ending all around. But if you feel squeamish about the process, remember that ordinary negotiations with all of the safeguards that a standard purchase offers, are still available. If you plan to live in the property for a long time, it may be worth paying close to the market value ito insure you family's happiness and security. 

© 2010 Stephanie Gieseler, Honolulu Hawaii. All rights reserved.