Could the Canadian housing market be in store for the return of the low-ball offer? While this buying strategy became all but extinct given the heated housing market in the last couple of years, rising interest rates have caused many markets to cool, and shift from strong seller’s markets to more balances, or even tilted in favour of buyers.
What is a Low-Ball Offer?
A low-ball offer is when a prospective homebuyer makes an offer to purchase a home that is below the asking price.
When Should You Make a Low-Ball offer?
Low-ball offers are more common in a buyer’s market, when there are more listings than there are buyers, and competition is not a factor. Another common scenario for low-ball offers is when looking to purchase a fixer-upper. Another common scenario for low-ball offers is when the buyers know they are dealing with a very motivated seller who’s objective is less time on the market, versus holding out for a price.
While there’s no hard and fast rule when it comes to making a low-ball offer, there are some things you can do to improve your chances of success. First and foremost, trust your real estate agent’s professional opinion on whether or not to come in at a low price, and exactly how low you can go.
5 Things to Consider When Making a Low-Ball Offer
1. Understand the market. If it’s a buyer’s market, you have less competition and more negotiating power. In a seller’s market, homes are in greater demand (often thanks to an influx of buyers, a shortage of listings or a combination of both scenarios) and the chances of a successful low bid are less likely. When deciding whether you should try to go in with a low-ball offer, trust the market conditions more than the home’s listing price. Your real estate agent will likely already have done a comparative market analysis, offering valuable insight on what comparable homes in the area have sold for recently.
2. Consider days on market. How long has the home been listed for sale? If you’ve been shopping the housing market, you’ll notice it when a home keeps surfacing in your listings feed. As days turn into weeks and months, depending on the homeowner’s urgency to sell, he or she could be more likely to accept a low-ball offer. It could be market conditions that have the home sitting on the market without any nibbles, or it could be the home’s condition. As part of your offer, a home inspection is a good idea to determine if any problem areas can be fixed and at what price.
3. To sweeten a low-ball offer, make it a clean one. When a quick sale is the seller’s objective, a great way to sweeten the pot of a low-ball offer is to remove the conditions. The seller likely already feels like he or she is making concessions on price, so removing conditional clauses could help. To help you stay limber at the offer table, ensure you get pre-approved for a mortgage before you start shopping. You’ll already have been approved for financing, and you know exactly how much you can spend. Removing this condition could tip the scales in favour of a quicker sale. But buyer beware! It is generally recommended to have a home inspection before agreeing to buy any home.
Understand the seller. Knowing the seller’s reasons for listing their home could help inform your buying strategy. Maybe the homeowner has already purchased another home and needs to unload this one, to avoid paying double mortgages, double property taxes, double utilities. You get the idea. Perhaps the owners have inherited the property and have no interest in keeping it. A new baby, a new job, or a slew of other factors could also prompt the need for a quick sale.
How low is a low-ball offer? Don’t risk offending the seller or the listing agent by coming in with an unreasonable offer. Ultimately, every seller wants a fair price, just as every buyer wants a bargain. Don’t waste the seller’s time, or yours, with an offer you know won’t be accepted. Be fair, and come prepared with rationale behind your low-ball offer. It could be the market, the home’s condition, the location of the property, the length of time the home has been on the market, or something else entirely.
The success of your low bid will depend on a number of factors, including your strategy, market demand and the seller’s sense of urgency to sell. Work with your real estate agent to ensure your strategy is considered from every angle.
Still Have Questions?
If so, that’s okay. You’re not alone. RE/MAX Canada hit the streets in a new video series, to find out just how much (or how little) the average person knows about Canadian real estate, and to offer some answers in the process.
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