How low is too low an offer on a home?
I have found a house that I am comfortable with
and would now like to make a bid. How low can I undercut the price
and not insult the sellers to the point where they're unwilling
It's the old limbo gambit: How low can you go without wiping out?
No doubt, you can undercut yourself right out of great
house if you venture too low. It's not unusual for sellers to tell
their agents not to field additional offers from a conspicuously
low bidder, especially when other serious suitors are on the hook.
But you can avoid that scenario with a little homework.
The most important weapons in the negotiation game
are market knowledge, cognizance of the seller's motivation (or
lack of it) and good old tact.
First off, your buyer's agent should be able to provide
you with "comps," which are recent sales of homes comparable
in size, acreage, floor plan, age, school district, etc. That should
at least give you a starting point.
You should also know that on average, homes sell for
4 percent to 5 percent below asking price. Realizing this, owners
typically list their homes higher than the amount they actually
expect to receive, while would-be buyers often back down several
percentage points below that mark as a starting point.
Therefore, a first offer of $138,000 for a home listing
for $150,000 or so will probably not be considered an insult in
the eyes of the seller in most markets. However, it may be one in
parts of Florida, California, Arizona, the Northeast and other places
where homes are rapidly appreciating.
Some gutsy negotiators will start as low as 15 percent
under list in a slow market. But 3 percent under is about as low
as you want to start in a hot seller's market and you'll probably
be moved off that number in the negotiation process if you really
want the place.
As for "motivated-seller" leverage, your
agent should be able to determine if the home has been on the market
awhile, or if the buyer needs to relocate quickly. These tidbits
of info give you additional negotiating power.
If you're going low, be prepared to explain your offer.
Needed repairs, lower comps or a need to replace the home's aging
central heating/air-conditioning units, are a few examples. But
don't say anything that reflects poorly on the buyer's tastes, such
as "that lime-green carpet is going to get torn out the day
we move in." Sometimes, pride alone can kill a deal.
The real trick is to let the buyer know that you are
serious, but not so serious that you have no other options should
negotiations fall apart.
Some find the art of haggling distasteful. But in
the big scheme of things, consistently tough negotiators are going
to pay a lot less for capital purchases in their lifetimes than
timid ones. It's up to you to walk that fine line between insult
For more on negotiations, see "How
to win the offer-counteroffer game."
To ask a question of the Real Estate Adviser, go to the "Ask
the Experts" page, and select "Buying, selling a home" as the topic.