Playing Lowball
From the Reasonable To the Ridiculous, A Guide to Small Offers

By Renae Merle
Washington Post Staff Writer
Saturday, May 31, 2008

In the year and a half that Ann Page has struggled to sell her five-bedroom McLean home, she has received an array of lackluster offers that fell below her original $2.499 million price tag. None was as exasperating as when the businessman from Dubai offered $1 million less than the asking price.

Even after she rejected his offer and lowered the price to about $2 million, the businessman asked Page to set up a call with her mortgage lender. She sat stunned during the three-way call as he attempted to negotiate a deal with the lender to buy the home directly -- at a discount.

"I just thought it was ridiculous. If you want to pay $1 million, then go to the neighborhood next door," said Page, a commercial real estate agent. "He doesn't seem to understand that I can't just give it away. This place has 10-foot ceilings, a three-car garage and an elevator."

Falling home prices have unleashed bargain hunters offering to pay well below the price listed by sellers.

These bidders see an opportunity to pay a fair price after years of spiraling home values or to get a good deal from a desperate seller. But sellers might view those offers as annoying or even insulting if they are convinced of their homes' value.

As a bond investor, Matt Watson, 26, said he found the lowballing strategy naturally appealing when he began searching for a home. "The way you make money on bonds is by buying it for a low price and making money on the yield. It is the essence of lowballing -- buy low, sell high," Watson said.

Watson's first try failed. He attempted to buy a one-bedroom condominium in a new building in Southeast Washington for $270,000, nearly $60,000 off the list price. The developer was willing to negotiate and lowered the price by about $11,000, but Watson decided to move on when it became apparent that he could not wrangle the price below $300,000.

Next he set his sights on the Madrigal Lofts, in a trendy neighborhood near downtown Washington. The condo he wanted was originally listed at $343,900, including a parking space. Watson signed a contract for $283,900, including the coveted place to park his car. He also got $5,000 in closing-cost help.

But it was not an easy process. It became a part-time job as Watson endured four rounds of counteroffers and negotiations, he said. "You have to look for desperation because with desperation comes a willingness to negotiate," he said.

While some home buyers such as Watson have had succeeded with a lowball strategy, it is not a process for people who are uncomfortable with tough negotiations -- or those focused on high-demand neighborhoods where competition remains fierce. The bargain hunter must first research the neighborhood and recent sales to determine whether a property could be vulnerable to a lowball offer, typically defined as more than 10 or 20 percent less than the asking price. Home shoppers must also be patient and willing to accept rejection, negotiation experts said.

Sellers should be similarly tolerant as they try to move an overly lowball offer into acceptable territory. First they must determine whether the offer is from a serious buyer and what their prospects for other offers may be, experts said.

One of the central policies for both buyers and sellers is to remove emotion from the process. "The single biggest mistake that people make when they negotiate is they become too emotionally involved," said Herb Cohen, author of "You Can Negotiate Anything."

An emotional attachment can make it more difficult for a seller to set a realistic value for the property and for a buyer to negotiate a lower price, said Carol M. Frohlinger, a negotiation expert based in New York. "They fall in love with a property, then it makes it impossible for them to walk away," she said.

The trick to a successful lowball offer may also be in the presentation. "The way to phrase it is: 'We really love the house, but we couldn't afford it at that price. This is what we could afford. We know it's way below what you're asking, but would you consider it?' " Frohlinger said.

That will leave the seller with a different impression than if the potential buyer complains about odd color choice, outdated fixtures or an inconvenient floor plan. "It is the way you make a lowball offer as much as the number itself," Frohlinger said.

Agent Daniel Odio said he encourages clients to make aggressive offers, for several properties in quick succession, looking for a seller who is willing to negotiate. "You never know how a seller is going to react to an offer until it's in front of them," said Odio, founder of DROdio Real Estate in Alexandria. "Listing prices are fictional, especially in this market."

Yet some real agents argue that thrifty shoppers may have already missed their opportunity for a deal or may have unrealistic expectations. Prices in some neighborhoods have remained stable despite the national downturn, while deep discounts have disappeared in other neighborhoods, they said.

If there is competition for the property or it is already listed at a discount for the neighborhood, buyers risk losing a desirable home with a lowball strategy, said Danilo Bogdanovic, an agent with Market Advantage Real Estate in Loudoun County. "Buyers are more concerned with getting the best deal than they were before," he said. But "it's not a blanket policy," he said. "You can't go out and lowball every property."

Home shoppers should develop a strategy that entices sellers to enter negotiations, giving them time to gather information about the seller: Is there a deadline to sell the home because of a job transfer? Has the seller already purchased another home and must sell this one to complete the deal? Have there been other offers?

"I would recommend that you never make an initial offer that the other party accepts," said Steven Briggs, a management professor at DePaul University who teaches a course on negotiation skills. "If they do, you have paid too much. You want the process to go back and forth."

A savvy buyer could also include other potential sticking points that will give both sides more than the price to negotiate, Briggs said. Buyers could request a home insurance policy for appliances or that someone selling a condo provide six months of the association's board minutes. Those are issues on which the buyer could be flexible during negotiations, he said.

"Don't get yourself into a situation where you are only arguing over price," Briggs said. "Make sure there are a lot of issues, so you have other things to haggle over."

After a buyer makes an initial offer, the seller can reject the bid completely or make a counteroffer. When responding to a counteroffer, buyers may give away hints about the flexibility of their price range if they are not careful, said Linda Babcock, a professor of economics at Carnegie Mellon University.

"If you bid $400,000 for something and your next bid is $450,000, that says one thing. But if you go from $400,000 to $405,000, that tells the seller something else," Babcock said. "Remember, the seller is trying to read you, too."

Using a lowball strategy, Eric Rogers and his wife, Yazmin, were able to find a bargain on a home in the District this year. The couple had their sights on a three-bedroom house in the Hillcrest neighborhood for several months. Even as the price dropped from $499,000 to $449,000, the couple decided to wait for another cut. Then they learned that they might have competition.

"We were going to wait a week or so and let them stew a little bit, but then had to go [forward] because there was another offer," said Eric Rogers, a government manager.

They submitted an offer of $412,000 and asked the seller to pay an additional $15,000 to cover the closing costs of their mortgage and to make some minor repairs. "I am still kicking myself. Maybe we could have gotten it for $25,000 cheaper," Rogers said, though he noted that the home is valued by the tax assessor at more than $600,000.

As a seller, dealing with lowball offers can be difficult. Negotiation experts say sellers should embrace such bids, adopting the mind-set that every offer, no matter how absurd, deserves a counteroffer. The gamble for sellers who automatically rebuff lowballers is that the next offer could be a long time coming.

The seller should submit a counteroffer but doesn't need to rush unless there is a deadline and shouldn't be too eager. If the seller appears too willing to drop the price, that can signal weakness, Babcock said. "You do not want to signal that you're anxious or desperate. It can weaken your negotiating power," she said.

Showing strength in a buyer's market can be difficult, though. Some agents advertise properties as having a "motivated seller," Briggs said.

"I would recommend that you never let anyone put up an ad like that if you're the seller," he said.

Page, 61, said she does not begrudge bargain hunting, especially because she has done it herself. In 2001, she saw a two-bedroom, 1,800-square-foot condo listed by a developer at $899,000. She offered $660,000, more than 25 percent off the list price, which the developer accepted.

"I understand the thinking. That is why I don't get upset," Page said.

The lowball offers she has received included a bidder who requested a $1 million loan from Page to apply toward the purchase of her home in the gated Evans Farm community and others who refused to put anything in writing.

She has become frustrated and has decided to hold an auction June 5, with a minimum price of $1.5 million. She has hired Sam Solovey, an auctioneer who appeared in the first season of "The Apprentice." She hopes to get multiple offers.

"I would think that some people would be embarrassed by what they offer, but they're not," Page said. "They think they should get it for nothing."