Advice on how to make a lowball offer?

Unless your making an all cash offer or the property has been on the market for a VERY long time, I don't think you stand a chance to be honest. If the property is overpriced, wait for price reductions or just move on to somethign else.

Alphabetsoup, your chances of prevailing are very, very low. That said, putting an offer doesn't take that much time, and if you like the place, why not? I wouldn't justify a first offer; you don't have to come up with comps unless you enter in negotiation (imho, less that 5% chance of that.)
What you want to communicate is that even though it's a lowball, you are a serious buyer, so make your offer in writing, show you have the funds and/or the credit, you have a lawyer ready and you are eager to move. If the seller's broker gets back to you with a counter-offer, that's when you break out your comps to justify your offer.

You should be well prepared with your rational for the low offer, Like, it needs a lot of work, here are my comps etc. Submit your offer along with your justification.

I would not be afraid of “insulting the buyer”, or not being taken seriously.

I do agree with the socialist in that in the current market, unless the broker or seller is really off base, wait for price drops or move on.

If you really want it and are fishing to see best that you can do, be prepared to come back quickly with maybe -5-10%.

Asoup
I ended closing at just under 20% of the seller's at the time asking price.Though every situation is different, I did it the following way;

1) All cash offer
2) comps, particularly in building comps establishing an average price per square foot.
3) patience, it doen't take right away, you have to allow a period of time for the seller to accept the situation. In my case I put the offer, all cash, with comps, with no serious time pressure but did let it go stale. 1 month later, came back with an ever so slight higher offer (@ 2%) with a time limit constraint saying, I am renewing my lease for a year, I am willing to wait another year to buy, I really do like your apartment but this is as far as I can go, I need to have a contract in hand within 2 weeks, before I commit to my lease.

I can't emphasize how important points 1 and 2 are.

I disagree with Socialist - you can ALWAYS make a lowball bid. But how that bid is received by the seller depends on the specific context. There are no set answers to your questions. Every offer is different.

Are you working with a buyer's agent? I ask because as a listing agent, I find lowballs more palatable when they come through an agent. And as a buyer's agent, I know how to present a lowball to generate a counteroffer. You seem to understand the nuance involved in making a successful offer - I think in this case, an agent can be helpful. Just make sure the agent is on board with your project from the beginning.

Tina Fallon
Realty Collective, LLC

@truthskr10- if you don't mind me asking....how much was your final offer? I am curious if it was under 1 million.

over $1.5 less than $3

truth - was the negotiation/closing in 2009/early to mid 2010?

Sellers are feeling stronger now (though it is still a point of discussion as to whether they should be)

After nearly 3 years in the market, I can tell you lowballs more than 20% off the ask are pretty much a waste of time. Unless, maybe it's been on the market over a year, and even then 1 in a thousand.
Still it's better to wait for a price drop that brings you within 20%.

An all cash offer usually gets one a better price. I have never heard of anyone making a SUCCESSFUl lowball without an all cash offer.

PH41
No didnt buy during that serious summer glut.
i bought last quarter.

And yes I also anticipated regardless of where the market is going that this second quarter would be strong.

Thanks truthskr10. Another question....when using comps as a tool, does condition of the apartment, (expensively renovated kitchen and bath vs original fixtures) play a part in those calculations? We have had a handfull of non-renovated units sell for very low numbers and beautiful ones sell much higher (I'm talking hundreds of thousands difference) Are the comps just averaged out to arrive at the price per sq ft?

broadbent
Like making any argument for yourself, when a point is to your advantage you mention it and when it hurts your argument you leave it out. If your thorough enough in your comps and present a good enough argument, maybe they miss that one that was in estate condition,etc.

Point is, know what your talking about, be open minded an ended at first,let the numbers sink in (5 stages of grief), then when you come back for a second tour be quick and with time constraints.

Well, I guess it was a question that people were interested in. Thanks for all of the quick and thoughtful responses. I think I may have overstated the severity of the lowball. I was thinking between 15%-20% off asking, not below 20% off. I was not thinking of an all cash offer though and many of you seem to think that is critical. Otherwise, what I'm hearing is submit the offer with no time pressure at first and then come back for a second round later. It's still not 100% clear to me whether it's best to give the rationale up front or wait for a second round.

15-20% does not seem uncalled for, but it's really a question of the comps. There's talk that sellers are inflating their asking price anticipating offers 15-20% below asking or various price chops along the way to a sale.

Some feel you should articulate the rationale behind your valuation, while others feel you shouldn't give any information away. Sometimes revealing comps opens the door for arguments that your comps aren't true comps etc and your offer becomes less defensible. I personally feel something in the middle is helpful. You want to indicate that you are serious, demonstrate your offer is fair, and maintain a dialog. What about presenting a range based on some recent comps - telling the broker you would like to submit an offer and feel $x-y is where you are thinking, and how would the seller feel about that? A range opens up a conversation. Obviously, you want the max price you would pay to be a bit above the top end of the range so you can make some movement, while the lower end of the range helps anchor the seller's expectations and lets them know that you won't be paying too much above your top. If you are looking to get your apartment at a steal, this is probably a bad strategy as you'll end up paying close/at what you think the apartment is truly worth, but if you are looking to secure your apartment at a fair price, this could be a helpful route.

Truthskr10, Bravo! excellent psychology and strategy.

Below is an offer letter I might send to the listing broker for a glaringly overpriced $9.5MM listing. The way I see it, there's not much point presenting a long written defense of a lowball bid. Just say you think your number is consistent with comps. If the other side wants to hear your detailed defense, they can ask.

As a courtesy, I strongly recommend calling the broker before sending the letter. Try to convey two things: first, your seriousness about buying the apartment; and second, your respect for her pricing. (It's an inexact science; reasonable people can disagree, etc.). The offer is the first step in a negotiation. You want the other side to want to do business with you. A low offer makes it especially important to start out on the right foot.

...

Ms. Lois Listingagent
Corcaling Prudential International Realty, Inc.
1991 Broadway
New York, NY 10023

Re: 195 Central Park West #13Z: Offer to purchase

Dear Ms. Listingagent:

Our clients, Lars and Lisa Lowballer, have authorized The Nearhardt Group to present an offer of $7,250,000 (seven million two hundred and fifty thousand dollars) for apartment 13Z at the San Beresworth.

This offer is contingent upon the following assumptions:
• The buyers will be able to secure fixed-rate bank financing for 50% of the purchase price at prevailing rates for jumbo loans.

We believe this offer is consistent with recent sales, most notably the sale of apartment 12Z last month, and with competing listings.

Lars and Lisa are highly qualified buyers: their net worth is a multiple of the proposed price; they have no long-term debt; and they do not need to sell an existing home.

I will provide contact details for the buyers’ attorney upon request.

This offer is valid until 4 p.m. Eastern time on Thursday, April 14th. I look forward to your reply.

Sincerely...

I would add something like:

The buyers will be able to close in X days, will legally commit to closing in X days, and will pay Y penalty/day of delay. If you're gonna to lowball them, close quickly (doesn't cost you that much anyway).

Good point. When it's applicable, we throw in the quick closing too.

Thanks West 81st. That was very helpful. And again thanks to everyone who responded.

tina, why do you find a lowball more palatable with a buyer's broker?

Newbuyer,
Read W81st's letter. That is why. If a broker tells me about a buyer's qualifications, he is putting his own reputation on the line as well. I don't need to know why your offer is so low - no need to drag out the comps, folks, I have done my own research - but I do need to know that it is an offer I should push my client to take seriously enough to counter.

Interesting, I had not thought of that. We have made two unsuccessful "lowball" offers in recent months, both without brokers. Of course, it's always subject to debate whether our offer was too low or the ask was too high - one apartment is still on the market, the other is in contract after two price drops, with the last ask a lot closer to our "lowball" than the ask at the time.

I am pretty sure having a buyside broker would not have made a difference in either case, but helpful to know for future reference. Do other listing brokers on this site agree with Tina that they prefer to get a lowball from a buyer's broker?

I would also add:

1. attorney information (show them you are ready to go!)
2. closing terms (as nyc10023 says)
3. brief description of employment situation/liquid with note to review attached financial statement (show your strength as a buyer! it will help when you play tough later on as seller will have more motivation to save a deal and work with a strong buyer)
4. confirmation that it was conveyed to the seller

newbuyer99, I think it will depend on whether you're dealing with an apartment that the seller's broker thinks is overpriced or an apartment where the seller's broker also needs convincing.

We have been to open houses when the listing agent clearly indicated to us that they believed the apartment would trade for well below the ask, sometimes directly and sometimes in roundabout ways. E.g., we saw an apartment priced at $975k, listed by the broker as 900 s.f., and that same broker told us that he thought it would trade at around $900 psf. Obviously, this broker was encouraging us to bid 20%+ below ask and mentioned several other facts to that angle -- the sellers are relocating, moving all of their stuff out next week, etc., etc.

We've also numerous times had agents throw out specific numbers 10-20% below ask. The sellers are asking a million, but I know they'll take $900k. (Nevermind that the apartment is worth $800k....) We're asking $850k, but we're expecting offers in the mid-$700s. I can't tell you the number of times this happened to us -- at least 10 times with 10 different brokers, none of whom we will ever hire to represent us as sellers, as I highly doubt the sellers authorized them to tell us these things. If you're dealing with an agent like that, you probably don't need a buyer's broker, assuming you are comfortable working with broker who is probably unethical and primarily looking out for their own interests. (And, as a buyer, I am comfortable dealing with those people if it's also of benefit to me.)

Feel out the agent and get them talking. I was floored by how many of them would talk, and how much they would say. If they don't say much, or if they seem to believe in the current pricing strategy, that's where I think a buyer's broker could help. But make it a one-time deal and not an exclusive.

Here it is in a word:

Underbid.

Sometimes there is too much over thinking.
A low ball sounds like a price that's way below fair market value. A price aimed at a desperate seller where some-how the buyer is getting an amazing bargin as compared to the comps of the day. I think here we are talking about a low offer as compared to the ask but, not compared to the comps. This is transmittable information from anyone. If your swinging for the fences maybe you need a more comprehensive plan.