Are Low-Ball Offers A Good Idea?

A low-ball offer typically involves a contract submitted to a seller where the price proposed by the purchaser is 25% or more below list. Low-ball offers increase sharply when there's a glut of properties available, asking prices are out of sync with local economic realities and values are depressed or uncertain. Buyers figure: Hey, why not? Maybe I'll get lucky.

Here in the desert our housing inventory (especially the desirable snowbird properties) has shrunk from above the usual 6 months of inventory down to 2 months! We're seeing multiple offers again. 

Not all properties are over-priced. Which is the better deal?

Example A: Property A is worth $200,000. but is priced at $240,000 and reduced to $205,000. Wow, that's a $35,000. price drop!

Example B: Property B is worth $200,000. but is priced at $190,000.

Believe it or not, some people choose Property A because it's only a deal to them if they can get a property under the list price.

The message here is to consult your Realtor.   Ask them to check the comparables (comps) to see whether the list price for a property seems above, below or at market level. The square foot price is not always a reliable basis for comparison. There are many factors that can affect the true market value such as location (sun exposure here in the desert), condition of the property and enhancements (swimming pool, crown moulding, etc.).

Do you keep losing out on properties you're bidding on? One good way is to make sure your offer is realistic for the current market. 
The take-away here: Rolling low-balls at sellers may have been an effective approach between 2008 and early 2011. But in 2012's environment — at least in rebounding markets — it could be counterproductive if you truly want to buy.
WASHINGTON — It's not something that economists routinely track, but it provides a rough sense of what's happening in local real estate markets. Call it the low-ball index.