Every real estate investor will tell you that the first rule of investing is to buy low and sell high. But that is just a vague generality because low and high are more perceptions than hard numbers. If you are just getting started in the real estate investment business you might be wondering if there is a more reliable formula to determine what a good low offer is as opposed to an offer that is too low and simply offensive. But there really is no way to know the answer for sure. Many seasoned professionals will swear that no offer is too low and that any chance for a great deal is worth the risk of an embarrassingly low offer. Just understand that not all low offers are accepted, and in fact only a very few are. But there can be other positive outcomes that begin with a “lowball” offer.
Sometimes, a very low offer will be taken as an insult and you will never hear a reply at all. But other times, that same low offer will generate a counteroffer that is still far below the original asking price. If the seller has had no offers at all then your low offer is not as bad as you might think it is. What you are really trying to accomplish is to alter the seller’s opinion of the value of their property. So to put numbers to this principle, you find a house with an asking price of $200,000. After looking at the comps and the area, you offer $150,000. If the seller has not had any offers in a few months, then $150,000 looks low but they want to court anyone with interest so they counter back at $175,000. You could take their counter offer and be happy that you just saved over 12% on the asking price. Or you can keep trying to work the seller down even further.
One important factor in offering low is the amount of time that the house has been on the market. You won’t get much response on a low offer for a house that just went on the market. But a house that has been lingering might have a much more motivated seller. There are actually investors who never go look at a house, they simply look only for houses that has been on the market for a long time and then they offer 25-40% below the asking price. They know that anyone who responds is motivated to sell and will give them a good deal. They also write an inspection contingency into all of their offers so that they have a way to protect themselves if the house is in complete disrepair.
Knowing that a low offer will not often win means that you need to decide to make a large number of offers if that is your business plan to buy low. And when you do get a counter offer, invest a little bit more time to see if the counter offer is still a good opportunity for you to make money on that investment.