I have a better one for you.....Stop Looking at what the homes are priced at, you don't know what the motivation behind that sale is, if there is one. Some people priced it 100K above market just to see if somone foolish will bite, others are bored and testing out the market, and someone else may think that they have the best house on the block when all the neighbors know thats not true. What you should be looking at is what type of offers people are making, and you can call brokers for that information. Also check to see what the homes actually sold for, nobody cares what they are listed for, it can be a new broker who's excited to take a listing and will over price it and lower his commission just to get an exclusive.
And share that with your buyers and sellers, don't listen to what the neighbor sold their home for, for all you know they don't want to be ashamed and told you an imaginary # which is 10% higher than what it really went for.

Best of Luck

Margaret - i'm just saying that in general - offers should be based on value - not asking price. Doesn't matter what market you're in, or what the conditions are.

Before you can determine if an offer is too low based on the asking price - you have to determine if the asking price is too high/low based on the market.

Sorry Myke -
that was not meant for you, it is just that Texas is not suffering as the rest of the nation is.
I am one that presents any offer. As I say they can not say no until you ask. It is my job to get the best deal I can for the buyer if I represent the buyer, and the best deal I can for the seller if I represent the seller .
It is just that I do not see a buyers market except for the distressed sales at this time where I am located.
You are not in the Houston area so your area may have a distressed market. Most of Souther Texas does not. the Dallas/ Ft Worth area is far different.

Margaret - well, no offence to all the pros out there - but when you have agents convincing people that anything less then 5% off asking price is insulting - yea, that's not a supprise.

I don't get it - people keep saying a buyers market but most of the homes in this area are selling of 97% of the asking price.

first you have to define "lowball".
Lowball could mean different things to different people. Some sellers will get upset at anything but full asking price. A man's home is his castle ya know.
Nevermind the fact that once they put a price on the house - in thier mind they've already cashed the check.
in short - selling price means very little in terms of actual market value.

When I'm looking at homes, I go through whatever data I can dig up to try to determine market value. If I know i'm looking in a declining market, and appraisers are going to knock down 5% right out of the gate - I do the same thing.
When I come up with a number, I compare that to the asking price - if they're in the same ballpark - great, I can go 5-10% lower then that for my initial offer (depending on the market) without much fear of stepping on anyone's toes. If the asking price is lower - i'll consider something much closer to the asking price, sometimes even the full asking price in certain situations.
If the price is higher - well, i don't care if they're offended. If you've got a house that reasonably should be up at 260, and the seller is asking 325 - sorry, that's thier problem if they get offended. THier agent should have walked them through and helped them set a better price.

In short - I don't look at asking price with the same weight as I do fair market value. I think this idea that somehow if you go too far off the asking price, you're going to offend people - or not get your offer taken seriously is kinda silly. If the asking price is riduclous - and you go slightly below that ridiculous price - you're not really getting a fair deal are you?

This says nothing of the fact that if the home is priced too high to begin with, now you're setting yourself up for a situation where your appraisal might not come in for your offer, and you risk the whole thing falling apart, simply because you didn't want to offend the buyer - or risk having your offer not taken seriously.

All this said - I would argue that it's the seller's agent's responsibility to price the home correctly for the seller, and the buyer's agent to price the home correctly for the buyer. Neither should have to make concessions because the other is unreasonable. I always try to make a strong offer based on market data, not asking price - and make sure I have the facts behind me to support that offer. If i can make that offer, have the facts, show where i came up with that number - and the seller just doesn't want to listen - then, it's not really worth it to fight for it. The person is being unreasonable, and just wants what they want. I'm not going to pay the price for that - not in this market anyways.

Tiffany,
Every one of these answers is good. Every buyer is different and each of us as Realtors are individuals with different ways of handeling people.
First we do want them to make an offer and we do not want it rejected. So find your way to do this.
Since there is no precentage I myself would not quote one.
I tell them them is nothing set in stone as to offers just as there is nothing set in stone as to the list price - I show them there is a ( hopefully slight ) variance in pricing in the homes in the area.
I tell them that the sellers can't say no until they are asked but lets not " T " them off and have them not want to deal with us at all. So now lets see what the homes similar to their choice have closed for in the last 6 months . I explain the the lenders will only look at 6 months. Hopefully we can get them back on the trac of a regular offer this way.
Most of the tire kickers want to offer 5% to 15 % less but have you ever noticed that their own homes are priced that much higher but they do not want to come down at all.

There is no real buyers market - it is still and always " Willing Buyer and Willing Seller "

Like below I pull comps no later than the last 90 days to show them what the market is doing and explain that the sellers agent is going to be doing the same thing more than likely to advise their clients. If your buyers are just adimit about going in low we do have our ethics to abide by however set them up that there offer could be handled in a way that isn't favorable for them in the end so if they really like the home they need to be sensitive to that fact they could blow it....further more if your tax records shows when they bought the home and for how much you might be able to prove there isn't much room based on sales price and the current date in time so their low offer may not even been considered because it would be so out of the ballpark.. We have so many sellers as you are aware that are just breaking even to get out of their current situations so explaining that might help also. If they really want a deal then they need to try and purchase a short sale where I'm getting sellers out of foreclosure and getting buyers into these homes for about 10-20k of front end equity. Short sales are good for those people who want equity in a down market.

:o) LOL, very good Mark.

Yes, we are required to submit all offers, but counteroffers are not mandatory. Smile as you explain to the Buyer that the best way to buy a home is not to say to the Seller, "Let 's get started by having me bust you in the face."

I always ask my clients who want to make a lowball offer, just how upset will you be if they refuse it, no counter and do not look at any second offer they may make? I also share with them the Top 100 report showing asking to sale price ratios in the area they are buying. They know a little more about the lay of the land then.

Thanks, Todd Norsted

Tiffany hi.
Try something different with them. First of someone mentioned that you should get comparables for a similar property, in a similar condition and see what those properties sold for and not what they are listed for. Also you may want to check how many times was the property that sold was reduced in price from it's original listed price and calculate that %. That is for you to know and educate your buyers on if you like.
For your buyers stricktly, you can ask this directly. How much do you like and want this property, if they say we love it and we want it, ask the broker to see if they already have offers and what those offers are, if they have offers you would probably need to top them, if they DONT than this is what you should tell your buyers. "If you love this property, and I belive its priced competitively, do you want to put in a low ball offer and risk the chance of offending the seller, or would you rather put in an offer for the asking price (maybe slightly below) and make sure that we secure this property and sign the contract as quickly as possible)
This will tell you just how serious they are about the home.

Good Luck.

By asking this question you are already down the wrong path. You assume that the seller has a clue what the property is worth, which may or may not be true. Take the best three comparable sales that have taken place, and make the case why your offer is competitive.

I never understood how someone could assign a percentage to where they should come in with an offer. For the Dataquick guys and the people that keep statistics to show trends, etc., they talk about percentages, but for a buyer and seller it's not a numbers game. It's a realistic look at the activity in the neighborhood, based on the sales, based on the condition of the property, and based on the buyer's determination of what he or she is willing to pay. Then it's up to the seller to decide. When I started in real estate a mentor said to me, I know you think it sounds glib, but a property is worth what someone is willing to pay for it. That saying is never more true than in today's market place.

In the past, I've cautioned agressive buyers that going more than 5% below the list price with a private seller risked total rejection of the offer. Today I think there is a little more tolerance than that. If the seller is corporate, you may be able to do closer to 10% in general. However, there is no substitute for a carefully done market analysis. If the house is priced fairly, than the list price is fair. The flip side is the answer to the question of the seller's capacity to take a lower offer -- if the seller is up against the wall and you are asking them to bring a check to closing and they don't have the money, then they don't have the money. Reality is reality.

Thanks! You all had some very good advice here. I am gong to take a lot of these suggestions and put them into practice. It seems I am hearing this question more and more and that is why I refer to it as the "milion dollar question" to my clients. I always do a buyers CMA, some take the advice others don't. I really like the idea of the written agreement, that definatly yells...REALITY check. lol Thats so much you guys are wonderful.

I try to make my buyers understand that it is not a buyers market and not a sellers market. It is a transitional market. The only time it is a buyers market is when you Mr. Buyer can buy the home for the price you want and not every seller is going to give their home away, and they shouldn't. We preach that owning is a good investment and it is up to us to help them get out with some sort of investment gain. There is no set percentage below market price. The lower the offer the higher the counter. (most of the time) Pull all your comparables and then do an apprecaition cost so you can provide the information to the buyers and then tell them I have prepared this so you can make an educated decision. My professional experience has been and then share your opinions and your expertise with them.
We as agents have got to stop saying it is a buyers market and then the low ball offers will stop.

I think that most of the really “Ridiculous” offers we get involved with are from individuals that have not been informed of the current “List to Sold” percentages the markets are now maintaining in a given area. Certainly we will deal with certain “investors” who will try to “lowball” on all offers, Always..But the individual buyer who is buying with an emotional effect will make more reasonable offers if they are attached to a specific home as compared to an investor who is simply buying a commodity item..Show them what your market is doing with “List to Sold” pricing, and if they want that house, the offer will be more in line.. In Columbia, SC we are running about 97.5% of selling price to list price even in this current market..

It's an excellent idea to have a document to let a Buyer know that their offer may not be accepted and it wil cost them the opportunity to purchase a property. This will put the prospective buyer on notice that you can't always get something for little to nothing. Even in a "Buyer's Market" there will always be the
Seller who will not simply give their home away. Also Buyers need to realize that they are wasting their agent's time on frivolous offers and alienating Sellers with exceptionally low ball offers.

I don't know if this will help, as you have excellent answers already, but a recent training I went to regarding having your bank owned offers accepted, reported that banks are seeming to take 90% of listed price and some have taken 85%. He expected this to go down as the market fills with bank owned properties.

I think everyone would be in agreement that there's no set percentage. When low-balling an offer, the buyer must make certain that they'll be okay if they don't get the house and I'd get it in writing that they won't blame you.

To drive your point home you might consider having an attorney draft up a simple agreement stating something to the effect of, "Against the counsel of YOUR NAME, the clients, THEIR NAMES, insist on offering $X for the house at THE ADDRESS. Broker and licensee will not be at fault nor suffer any penalties if offer on THE ADDRESS does not go to contract and/or close."

You might be thinking, "That's ludicrous! A signed agreement?" But this way, buyers know your serious and that you strongly advise against a low-ball if it really isn't in their best interest, and if they really like the house and the offer doesn't go through, they will blame YOU.

Even though it may get to contract, it might not go to closing if they buyers start making repair requests. I'm going through that with a seller client of mine right now. The price was low-balled at the beginning, and when they came to an agreed price, my seller said he'd refuse to fix anything. Of course, the buyers wanted some things fixed after the inspection, and my seller's said, "Nope. No way." The process of the extremely low offer made my client think, "Okay, if they're going to play hardball, then so am I." Just think - every action has an equal and opposite reaction.

Since your objective is to get your buyer to make an offer, your response sounds good to me. You might add that they will have lost nothing. Sooner or later, they will wise up if they are dyed-in-the-wool self-styled wheeler-dealers--but they may also over react if they are just ill advised in their actions.

Remember the adage that "sellers want the highest price and buyers want the lowest price"--and throw out the second part of that. Buyers want some part of both the lowest price and lowest cost. If your buyer is VA, cost will make a big difference to your seller too.

You should therefore explain it as I have in several posts to this board:

"Every transaction is unique, and the stats you want are not likely to be helpful. Likely, _____ (the neighborhood) is not a unique market, and the ratio may range from 1:0.85 up to 1:1.03, like it does in _____ (your market area). Even with the stats you want, factors like the property condition, upgrades, improvements, seller motivation, buyer motivation, whether the property was priced right and seller contribution would not be readily available--and make a big difference to the bottom line. Though many of these factors can be inferred, the best strategy is to make an offer based my (your) market analysis on the property and use the bargaining points available to us to lower your costs."

The key to this is the relationship between seller contribution and lowest cost. It also involves the old adage about first impressions. Psychologically, your buyer's negotiating position is strengthened by bringing in a reasonably good price offer--the first thing a seller wants to know--and trying to reduce their costs through seller contributions. It avoids putting the seller off at the get-go, and usually also benefits your buyer more.

I recommend taking a class in negotiations if you have not done so yet.

I want to take you one step further than the other answers. Even more than market specific or price range specific if a seller simply can't take less then he can't and no number of low balls can change value. I am aware that buyers as a general rule now think sellers are desperate and will take anything. Many buyers think buying is not worth it if they can not steal it and that is unfortunate because someday they willbe sellers. Try the shoe on the other foot method.

I agree with Naima. I do a CMA on the property and show my clients what similar homes are selling for in that neighborhood and take it from there.

I started a blog here How buyers low ball offers cause serious problems with the seller. Read the comments from the other real estate agents.

Difficult to educate a buyer who only purchase maybe up to 3 homes at best explain how they can ruin their chances for a real estate purchase OR can cost them $1000's more at closing for the seller may not want to do seller concessions, repairs and etc. They could lose the opportunity on purchasing a home
Show the CMA"s however the buyer is probably head strong does not understand real estate, work with the listing agent explain that it not your idea it is the buyer perhaps being truthful with the listing agent the you can do a win win situation have the listing agent respond about low ball offers.
Good luck !
PS my blog on Trulia is specific to show buyers why not to low ball offers make your comments there us as realtors let's try to educate the home buyers, than have them waste allot of time,

Tiffany, first it depends on whether it truly is a buyers market in your area. In our market homes exceeding 300K are definately in the buyers market category, whereas homes in the 120's to 160's are sellers market. If we are looking at a home that truly is in the category of buyers market use an analysis with the latest home sales on very good comparables. What is your market average on DOM and listing VS sales price? If a house has been on the market for more than 90 days without price adjustments, or has been on for more than 30 extra days with a price adjustment I'm usually pretty aggressively low.
There is no good answer for this question. It is taken on a case by case basis with the best data we can get and using all of our market knowledge about area, DOM and pricing. That's one reason that it's going to be difficult to put agents out of business!

There is no percentage or magic formula. It's all market and city specific. In Dallas, there are some areas where it's a sellers market. Your best bet is to do a history on the house, do a CMA on the property and then the buyers will decide what they think it's worth to them and make the offer accordingly.