From the NY Times:
Lowball Offers on the Rise
By LISA PREVOST
Published: March 16, 2008
WHAT image does the term “lowballer” conjure up for you? A smirking bottom feeder in a bad suit? A fast-talking investor working the phone?
How about a couple of young newlyweds who have saved their wedding cash to put toward their first home?
James and Valentina Sbarra fit the last description, and they are relieved to be able to call themselves successful lowballers. Any nervousness they felt in making a stingy offer — lowballing is typically defined as offering less than 90 percent of a house’s asking price — fell away the minute they struck a deal on their two-bedroom raised ranch in Pawling, N.Y., in Dutchess County.
“We kind of took a gamble,” said Mr. Sbarra, a bank manager in Mount Kisco, N.Y. “But it worked out for us.”
Throughout the region, buyers of all stripes are feeling similarly empowered to bid low and keep their hopes high. The practice still fails more often than not, in that buyers are unlikely to get themselves a steal. But many sellers are swallowing hard and negotiating, because lowballing has become so common that, for better or worse, it’s part of the new norm in buying or selling a house.
The Sbarras gambled by offering $287,000 for their house, which was listed at a reasonable $329,000. In doing so, they risked angering the owner and ruining their prospects for negotiation.
“I think it’s worth $320, $325, and I gave them my opinion,” said Peter Bell, an owner of Balch Buyer’s Realty in Mamaroneck, N.Y., an agency that represents only buyers. “But they said, ‘We don’t want to go too high.’ So I said, ‘O.K., let me make the offer as strong as I can, and we’ll hope for the best.’ ”
Much to Mr. Bell’s delight, the owner responded with a counteroffer of $315,000, and the parties went back and forth until settling on a price of $300,000, the amount the Sbarras had set as their cutoff. The couple moved in last month.
“We would have been disappointed if it hadn’t worked out,” Mr. Sbarra said. “But it was a situation where we felt buyers had the upper hand.”
Tami Rapaport, a sales associate in the Tenafly, N.J., office of Coldwell Banker Residential, finds the same thing happening in Bergen County. “People are coming in with offers even 20 percent under,” she said. “People have no shame.”
To be sure, there is an aspect of lowballing that seeks to take advantage of other people’s desperation or misfortune. Some lowball bids are plain outlandish, never mind insulting.
Yet in a difficult real estate market like this one, advocates of the lowball approach say that, practiced respectfully and within the bounds of reason, it can also serve as a necessary reality check on overpriced properties. If some agents are reluctant to push stubborn sellers to lower their prices out of fear of losing the listing, a few disappointingly low offers will communicate the market’s message in the bluntest terms.
James Bednar has been tracking New Jersey lowballers on his blog, New Jersey Real Estate Report (available at njrereport.com) since mid-2006. Inspired by his own frustrations as a buyer, Mr. Bednar said he wanted to test the conventional wisdom that lowballing “was a waste of time — that it was futile to even attempt it.”
So, after obtaining a real estate license, which gives him access to multiple listing service data, he began periodically posting lists of sales with gaps of 10 percent or more between the original list price and the selling price.
At first, the conventional wisdom held up — only a tiny percentage of sales reflected accepted lowball offers. But as the market began to slide, the discounts deepened. His last “Lowball!” report, in January, used a 25 percent discount as the starting point, and he still turned up 55 sales in the previous month.
A real estate agent now himself, Mr. Bednar sees no shame in making a low offer on a property clearly priced well above the market. While even 5 percent below the asking price might be considered an unfair lowball on a reasonably priced home, on a property priced “horribly high,” he said, “20 percent might be just scratching the surface.”