Negotiating vs. Low-Balling

[Russ H]

SteveO-

Something in my gut says your idea of "lowball" and others on here may be quite different (and you've seen my gut, so you know what a sizeable hunch this is! ).

From everything you've ever told me, your offers are based on numbers-- you crunch them, and you come up with an offer based on this (it's what we do, as well). If the seller can't see where you're coming from, or feels that their prop is worth more, they pass on your offer.

I don't consider that "lowballing". I consider that a fair offer.

In a few instances, I've had the seller try to convince me that their property was worth more. Sometimes it actually works-- they show me something I hadn't considered/factored in (like, this SFH is on a large lot in the city of St Helena. I'm selling it for $160K, even though the house is a tear down-- because the lot is SO big you can subdivide it into 2 or 3 lots-- worth at least 120K ea! (I didn't want to develop at that time, but the person who *did* buy the place did exactly that--- tore down the existing house, built a small one on the back of the prop, subdivided, sold the house on the back, and built a beautiful house on the front lot w/the profits from the sale of the back house).

And sometimes, the seller just isn't being realistic-- like the guy who was trying to sell his B&B based on 100% occupancy (65% is the norm if you're REALLY good-- his was closer to 45% at the time). One hundred percent occupancy is just flat out impossible (you've got to repair things). And it's also not real world (85-90% is about the highest I've seen properties go).

So, SteveO, a request:

Give an example of when you "lowballed" someone-- not intending to insult them, but offering them far less than what they were asking.

And what happened.

-Russ H.

 

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[kimberland]

SteveO-

Something in my gut says your idea of "lowball" and others on here may be quite different (and you've seen my gut, so you know what a sizeable hunch this is! ).

I agree.
To me, a lowball is not really based on what the item is worth
but on what you think the seller may be desperate enough to sell it at.

Kind of like putting a bid in for a stock
at lower than the 52 week low
based on... well... nothing,
a hope and a dream that the market will have a terrible day.

 

[SteveO]

The discussion that I had was attempting to stay within the framework of Yankee's original comments and questions. If the offer for the car was too low, it would not have been contemplated. Those salesmen are professionals at taking more money from unsuspecting buyers. They know how to play the game.

As Russ stated, I don't think that many low offers will get much consideration. They tend to soften the seller a bit if that is all they get. It certainly leaves a bad taste in the seller's mouth. Sending in some sort of justification with your offer may help.

I have a few examples of offers that I am sure the seller considered "low-ball". There are a couple of big ones that the sellers accepted with time.

In one case the sales agent was pushing a deal on me. I shopped the property and reported back that the price was too high, the property was run down, and that the management was doing a terrible job. They were installing bright blue and green carpets because they were cheap. The property was cluttered with litter and the landscaping was not kept up. The main sign for the property had been hit by a car.

The financials that were handed over to me were even more dismal. They had been telling me that the property was well occupied so there was a disconnect.

I put in an offer based on what I saw.

The agent told me that the guy had passed away and the daughter and son decided to sell it. I guess the father had told them repeatedly that this was a nice property. The management company was telling them that everything was running well and kept promising more money in the future.

Finally the agent talked the daughter into coming down to the property for a visit. She accepted my offer on the same day. It was about 1M below their asking price.

 

[lightning]

That future fear of whether or not I could have "done better" is what usually drives me to throw in that low-ball number when buying a car/house. As a few of you guys said, if you never have to deal with the seller again, its worth a try! When sellers get motivated, a lowball offer can sometimes net you one helluva gain!

 

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[Astute]

I know this thread is old, but it has some useful advice which I think can be added to some more for anyone else who is looking for it.

+

Before entering into any negotiations about anything you need to do your research and be well prepared. Know what you are prepared to pay for X, what terms you're prepared to pay for X, the market value of X and the future value of X.

Straight away after doing that you will be able to get a feel of good or bad deals, whether it be property, cars, phone deals etc.

Then you need to think about a few things:

- Is this transaction a one off?
- Is this transaction repeat business?
- How long will it take?

If it is a one off then go straight for the kill and low ball them. Present them with your evidence of why X is over priced. (Note: it is perfectly legitimate to carefully select your sources to show that X is overvalued.) But be careful because the reaction will either be positive and you will move them down on the price, or it will be negative and they will counter at a higher level than expected. If you are not arrogant and if you are open about why you think X is overpriced then you will probably get a better reaction to doing this.

If you intend to do more business in the future with this person then I'd suggest to be less aggressive. If you can present information about why X is overpriced, but you still offer friendly terms and a good price to the seller, then you will establish a good relationship will them. It is important to show this information to them so they realise that you are not an idiot, but you are choosing to be less aggressive on price because you realise the importance of the relationship. You need to know how the seller works and thinks and understand what is most important to them. It may not be the price, but the date when X is delivered, or how much of a deposit you will pay for X. Once you have done this and built a rapport with the seller then in the future they will offer you more favourable terms and give you better prices. Having a good relationship with the sellers could also save you a lot of hassle if you ever run into trouble. Business is all about good relationships with other people and nurturing them. Other businesses have the power to help grow or destroy your company so never get too arrogant when dealing with them. There are big businesses that love to miss payments and renegotiate contracts just to throw their weight around; but when the market turns these same people will be in a much weaker position and will be shown no mercy.

Also think about how long the transaction is going to take. If you are having someone build a house for you over 24 months then is low balling them really a good idea? Probably not. If you screw someone on the price you are more likely to get poor materials, poor build quality and when you need assistance somehow in the next 24 months then guess what, they will remember you low balling them and squeezing them on the price. Caution: remember at the same time agreeing to a price that's high won't guarantee you get a good quality house. You still need to monitor and assess the whole situation.

Lastly, but perhaps just as important, is different nationalities will have different styles of doing business. The Chinese / Asians in general have 'face'. Which means that it is not really a good idea to embarrass them or make them feel uncomfortable. They usually are a lot more indirect and you should learn to pick up on signals. On price the Japanese will usually state a price and not budge. They don't really haggle. So low balling them can really blow up in your face. Indians, (some) Europeans and Americans will love to haggle and you can use this to make them feel like they are getting an excellent deal when they aren't necessarily.

A few other tips: getting people on the phone will always allow you to get more information out of someone. People are a lot more careful about writing emails and letters because they can check and reword them. You can't do that on a phone. You can also pick up on whether they are lying to you.

I have covered just about every situation I can think of. Practice and preparation are the key to entering negotiations as a buyer; you will be much sharper and better negotiator if you do those things and eventually it will come without thinking.

There are a few different things that need to be done as a seller but won't go into them now.

((The above is just my opinion after learning the ropes and working in a brokerage firm, so take it or leave it as you wish.))

 

[randallg99]

Lastly, but perhaps just as important, is different nationalities will have different styles of doing business. The Chinese / Asians in general have 'face'. Which means that it is not really a good idea to embarrass them or make them feel uncomfortable. They usually are a lot more indirect and you should learn to pick up on signals. On price the Japanese will usually state a price and not budge. They don't really haggle. So low balling them can really blow up in your face. Indians, (some) Europeans and Americans will love to haggle and you can use this to make them feel like they are getting an excellent deal when they aren't necessarily.

A few other tips: getting people on the phone will always allow you to get more information out of someone. People are a lot more careful about writing emails and letters because they can check and reword them. You can't do that on a phone. You can also pick up on whether they are lying to you.

((The above is just my opinion after learning the ropes and working in a brokerage firm, so take it or leave it as you wish.))

thank you for your experience dealing with internationals - I find it extremely fascinating. I have dealt with Russians before and it's important to have thick skin. I have also dealt with Panamanians and it's important to be very personable.

If you're in sales, then you'll know what I mean when I say "you have to know your customer"

Your point about calling the sellers and getting on the horn with them is spot on - emails are not only informal but like you said you cannot get the full story. But more importantly, you cannot ever build a relationship with email. If you're working a larger sized deal then you will need to take the time and use your personal skills to speak with them on the phone. Better yet, get together with the seller.

Now - the original topic of negotiating vs lowballing is still a valid argument and both have their places depending on the situation.

In my situation where I am focusing my efforts on a neighborhood (with ten's of thousands of SFR units) I will certainly low ball. For every 100 low-ball offers I submit, I will receive responses on a handful. Sometimes a lot of response and sometimes none.

now, if there's a certain property, such as a large multi family or office building, then I would certainly resort to using a different tactic and identify the inefficiencies of the property to justify my price and negotiate terms. In this situation, many more variables come into play- 1. is this property so unique that it fits my requirements financially? 2. who owns the property (bank?) 3. are sellers anxious? 4. terms given by lender and seller

So in a nutshell there's a place for each of these types of offers.

 

[hatterasguy]

Negotiating is an art form. You have to know what something is worth to you and when you can beat up a seller and when you cannot.

Usually at least with property you can read the seller and know how much you can get them down. Sometimes I beat the living snot out of them if they are desperate, other times I make friends with them over a period of years and slowly get the price down. On one parcel of land I was in talks with the owners for 5 years and every year we got a bit closer on price. (read he kept inching towards reality) Finally a few months ago we agreed and signed a contract.

But at the end of the day a deal is a deal and it works at certain numbers, if you can get those numbers anything lower is a bonus. Since its a business at the end of the day you have to buy and sell by your numbers.

 

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[antforthewin]

There was a story I heard of John Huntsman Sr the chemical businessman from Utah. He asked the price of a mountain, they said it was 13 million, he said he would offer 3 million (what am I going to do with a mountain?) They may have took it as a joke but months later called him and offered it for 9 million, he said thanks for coming down, however I will offer 3 million. He gets a call months later and they actually said they would give it to him for the 3 million. It was my understanding he did not particularly want this mountain but still purchased it at that price and created a ski resort there.