A very common saying in property circles is "You make your money when you buy." This then leads to the idea that the less you pay for a property, the better. And look, if you're buying a property with a view to capital gain over time, I guess there's some truth in that.
Lowballing is the natural extension of that philosophy. Lowballing means to make an offer significantly below the asking price or market value of a property.
But as Property Developers, the main source of profit for us is the gain we manufacture ourselves. So is lowballing something we should consider doing in order to add more profit to our deals?
At this point I'm going to pull my favourite answer you love to hate out of my hat - it depends.
While making lowball offers might be advantageous in some situations, there are also potential drawbacks. Let's take a look at some of the pros and cons of lowball property offers.
Pros of Lowball Offers
Potential for Bargain Purchase: This is a no-brainer really - the primary advantage of a lowball offer is the opportunity to acquire a property at a significantly lower price than its market value. If the seller is motivated or needs to sell quickly, they might be more open to negotiating and accepting a lower offer.
Savings: A successful lowball offer can result in substantial savings for the buyer over the course of ownership. This could translate into lower mortgage payments and more affordable monthly costs.
Negotiation Leverage: Starting with a low offer can give the buyer more room for negotiation. It sets a baseline for further discussions, allowing the buyer to potentially meet the seller somewhere in the middle. So while your lowball offer might not be accepted, you might still end up at a price well below what you might have expected otherwise.
Cons of Lowball Offers
Offending the Seller: A very low offer can offend the seller and create a negative tone for negotiations. The seller might be less willing to engage in further discussions, making it harder to reach an agreement.
Missed Opportunities: Making a lowball offer could lead to missed opportunities if the seller prioritises other buyers who are offering closer to the asking price. This could result in losing out on the property altogether.
Delays and Frustration: A lowball offer might lead to extended negotiations, delays, and potential frustration for both parties. If an agreement isn't reached, it can waste time for both the buyer and the seller.
Market Perception: Consistently making lowball offers could negatively affect your reputation as a buyer. Real estate agents might be less inclined to work with you if they perceive you as an unrealistic or difficult buyer.
In many ways, all these pros and cons can be boiled down into two main themes - buying the property cheaper versus pissing off a whole lot of people.
Now, if you're a homeowner or property investor, chances are you're not going to buy or sell a lot of houses in your lifetime. You buy, you live there or rent it out for an extended period, then you either sell or buy another investment property. Simple.
As a property developer, though, chances are you will buy multiple deals over a period of time. And, most likely, be selling off the end product of your developments in the same area.
Which means you're going to need to go back to local agents time and time again. If you're perceived as being a pain in the backside who causes a lot of extra work by putting in lowball offers that never get accepted, what are your chances of building good rapport with those agents? About zero, I'd suggest.
As I mentioned earlier, some people also put in lowball offers with a view to starting at a lower negotiating position, with the intention of going back and forth until they and the vendor meet in the middle somewhere.
If you want some homework, read the book "Never Split the Difference" by Chris Voss. The book will definitely open your eyes and you'll probably think twice before you ever do that again!
The whole "lowballing" concept also ignores one vital fact - negotiations are about a whole lot more than price. I regularly pay full price or even a little bit more for a property, if I can get better terms as a result.
Let me explain. I've found a site, and I know it will take 12 months to get the necessary Council approvals for development. I can buy the property, and pay the holding costs for most of the 12 months while I get Council approval.
Or I can get 12 months delayed settlement, and get Council approval before I have to start paying those hold costs. That's going to save me a big chunk of change - but maybe the vendor wants a quicker settlement.
But how about I then say to the vendor that because delaying settlement means I save costs, I'm willing to pay more for the property in return. If they're a vendor with a fixed price they want to achieve in their head, this can be a great way of giving them what they want in terms of price, while getting the terms I want. We both win.
I'll just finish up by saying there's nothing wrong with offering the vendor a figure below the asking price. Sometimes if you offer their asking price straight away, they start to wonder if it's too cheap and will want more!
What I'm saying, though, is just remember that while a lowball price might stroke your ego, be aware of the peripheral damage to your reputation and integrity that offer might cause.
In the end, what you save on one lowball purchase might cost you a whole lot more in the long run.
Lowballing is the natural extension of that philosophy. Lowballing means to make an offer significantly below the asking price or market value of a property.
But as Property Developers, the main source of profit for us is the gain we manufacture ourselves. So is lowballing something we should consider doing in order to add more profit to our deals?
At this point I'm going to pull my favourite answer you love to hate out of my hat - it depends.
While making lowball offers might be advantageous in some situations, there are also potential drawbacks. Let's take a look at some of the pros and cons of lowball property offers.
Pros of Lowball Offers
Potential for Bargain Purchase: This is a no-brainer really - the primary advantage of a lowball offer is the opportunity to acquire a property at a significantly lower price than its market value. If the seller is motivated or needs to sell quickly, they might be more open to negotiating and accepting a lower offer.
Savings: A successful lowball offer can result in substantial savings for the buyer over the course of ownership. This could translate into lower mortgage payments and more affordable monthly costs.
Negotiation Leverage: Starting with a low offer can give the buyer more room for negotiation. It sets a baseline for further discussions, allowing the buyer to potentially meet the seller somewhere in the middle. So while your lowball offer might not be accepted, you might still end up at a price well below what you might have expected otherwise.
Cons of Lowball Offers
Offending the Seller: A very low offer can offend the seller and create a negative tone for negotiations. The seller might be less willing to engage in further discussions, making it harder to reach an agreement.
Missed Opportunities: Making a lowball offer could lead to missed opportunities if the seller prioritises other buyers who are offering closer to the asking price. This could result in losing out on the property altogether.
Delays and Frustration: A lowball offer might lead to extended negotiations, delays, and potential frustration for both parties. If an agreement isn't reached, it can waste time for both the buyer and the seller.
Market Perception: Consistently making lowball offers could negatively affect your reputation as a buyer. Real estate agents might be less inclined to work with you if they perceive you as an unrealistic or difficult buyer.
In many ways, all these pros and cons can be boiled down into two main themes - buying the property cheaper versus pissing off a whole lot of people.
Now, if you're a homeowner or property investor, chances are you're not going to buy or sell a lot of houses in your lifetime. You buy, you live there or rent it out for an extended period, then you either sell or buy another investment property. Simple.
As a property developer, though, chances are you will buy multiple deals over a period of time. And, most likely, be selling off the end product of your developments in the same area.
Which means you're going to need to go back to local agents time and time again. If you're perceived as being a pain in the backside who causes a lot of extra work by putting in lowball offers that never get accepted, what are your chances of building good rapport with those agents? About zero, I'd suggest.
As I mentioned earlier, some people also put in lowball offers with a view to starting at a lower negotiating position, with the intention of going back and forth until they and the vendor meet in the middle somewhere.
If you want some homework, read the book "Never Split the Difference" by Chris Voss. The book will definitely open your eyes and you'll probably think twice before you ever do that again!
The whole "lowballing" concept also ignores one vital fact - negotiations are about a whole lot more than price. I regularly pay full price or even a little bit more for a property, if I can get better terms as a result.
Let me explain. I've found a site, and I know it will take 12 months to get the necessary Council approvals for development. I can buy the property, and pay the holding costs for most of the 12 months while I get Council approval.
Or I can get 12 months delayed settlement, and get Council approval before I have to start paying those hold costs. That's going to save me a big chunk of change - but maybe the vendor wants a quicker settlement.
But how about I then say to the vendor that because delaying settlement means I save costs, I'm willing to pay more for the property in return. If they're a vendor with a fixed price they want to achieve in their head, this can be a great way of giving them what they want in terms of price, while getting the terms I want. We both win.
I'll just finish up by saying there's nothing wrong with offering the vendor a figure below the asking price. Sometimes if you offer their asking price straight away, they start to wonder if it's too cheap and will want more!
What I'm saying, though, is just remember that while a lowball price might stroke your ego, be aware of the peripheral damage to your reputation and integrity that offer might cause.
In the end, what you save on one lowball purchase might cost you a whole lot more in the long run.
