Offering 15% Under? Why?

By Dave Fratello | October 26th, 2021

We recently debuted - and quickly went into escrow on - a 1960s SFR in the Sand Section at 3420 Alma. (Property photos below in this post show the house.)

It was a pretty fast process, just 6 total DOM, which included a few days to sort through multiple offers.

But it was the first offer that was, what's that word? ... WEIRD.

It came in quickly, on Day 2, and super low.

List price: $2.049M.

Offer: $1.700M.

That's a remarkable 17% under asking.

Many reactions to that are possible, but, oddly, here was our reaction: "Wow. We might have a dozen offers!"

Shouldn't we have been hopping mad about the waste of everyone's time?

3420 Alma Avenue Manhattan Beach CAOr should we have taken that offer as a portent of more low offers to come? ("Oops, they called our bluff. We overpriced the house and these buyers saw right through it.")

Nah.

After a quick "pshaw," what was triggered was not emotion, but memory.

When else have we seen offers come in 15% (or more) under asking?

3420 Alma Avenue Manhattan Beach CAThree times that we can recall for sure were cases where we got 8-14 offers on a property.

There would be asking price offers, some a little over, some a little under, and one stinker 15% below asking. Huh?

3420 Alma Avenue Manhattan Beach CAYou don't often see garbage lowball offers on properties that are stuck on the market. A buyer may troll 5-10% under asking, and cite your long days on market as a rationale. But they're usually angling to get the property, not upset everyone and make the whole exercise a waste.

So now, 17% under asking? On Day 2 for a property that was obviously destined to sell higher? You came to the open houses and saw the streams of people. Why would you do that?

They didn't really explain. Could be anything. Could be they thought "hmmm this house needs some remodeling and updates, we should deduct the cost of that off the list price." As if the list price didn't consider the home's condition. Mmmm hmmm.

Wise veterans of real estate have let us know this can be a strategy of some buyers in all market conditions. Spray out a series of offers all over the darn place, without special regard to the dynamics of any one particular property. It's the "shotgun approach," whereas in real estate, you usually take the "rifle approach," targeting one property at a time.

To play it out, you need a compliant agent who doesn't mind wasting time on offers, with the idea that one might eventually hit. And if the strategy involves writing multiple contracts at once, not all of which the buyer could actually complete if all were accepted, that agent needs to be a bit ethically flexible.

But those kinds of lowballer buyers are often presenting cash.

This 17%-under offer was financed with 25% down and standard contingencies across the board. It didn't scream out "special."

Oh, and there was this other red flag. In a standard transaction, the buyer puts down a 3% deposit into escrow as earnest money. That 3% isn't random, it's tied to the liquidated damages clause in the standard California purchase contract.

But this early offer had a 1% earnest money deposit. This simply added to the unattractiveness of the offer and gave away the buyers as being less than serious.

There's a maxim in real estate: "The first offer is usually your best offer."

Usually ain't always! We got 9 better ones for 3420 Alma.

Sometimes the first offer is just a hint that soon, you'll be off to the races.

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Blogger's note: We don't usually tell spicy tales directly from transactions. We made an exception here in part because of the absurdity of the first offer, and frankly because the buyers and agent were both from far, far out of the area. ("Is that town in the Valley, or down by Lake Elsinore, or where?") It can be hoped that they'll figure out the South Bay after some learning experiences.

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