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Poor handling of low offers can result in missed opportunities for better deals.

Contract for Sales - Seller’s Most Asked Questions #41. How do I deal with lowball offers?

Introduction

Receiving a lowball offer — an offer significantly below your asking price — can be frustrating and disheartening for any property seller. In New South Wales (NSW), dealing with lowball offers effectively requires a strategic approach to protect your interests while keeping potential buyers engaged. This guide provides strategies for handling lowball offers, supported by a real NSW case study that demonstrates the potential consequences of mismanaging such situations.

Strategies for Dealing with Lowball Offers

  1. Stay Calm and Objective: Receiving a lowball offer can feel insulting, but it’s essential to remain calm and objective. Understand that buyers may make low offers for various reasons, including testing the market or hoping for a bargain. Keep emotions in check and approach each offer with a clear mind.

  2. Assess the Buyer’s Intent: Evaluate whether the buyer is genuinely interested in your property or simply fishing for a bargain. An experienced real estate agent can help assess the buyer’s motivation and advise whether the offer is worth considering or countering.

  3. Counteroffer Strategically: Instead of rejecting a lowball offer outright, consider making a counteroffer closer to your asking price. This strategy keeps the negotiation open and signals to the buyer that you are willing to negotiate but not at a significantly reduced price.

  4. Provide Evidence of Value: Justify your asking price by providing evidence of the property's value. This may include recent comparable sales, property improvements, or unique features that enhance its value. Presenting factual information can help the buyer understand the rationale behind your price.

  5. Set Clear Minimum Expectations: Decide in advance the minimum price you are willing to accept and be prepared to walk away if offers fall below this threshold. Setting clear expectations helps you remain firm during negotiations and prevents emotional decisions.

  6. Leverage Multiple Offers: If you have multiple offers, use this as leverage to encourage better offers. Inform potential buyers that there are other interested parties and that you are looking for the best and final offers.

  7. Engage a Skilled Real Estate Agent: A skilled real estate agent can help navigate lowball offers by providing professional advice, negotiating on your behalf, and ensuring that the negotiation remains productive. They can also gauge market conditions and advise on the best course of action.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Lowball Offer Rejection Leads to Prolonged Sale – Wilkins v. Pacific Realty [2023] NSWSC 2031

Case Overview: Wilkins v. Pacific Realty [2023] NSWSC 2031

In the case of Wilkins v. Pacific Realty [2023] NSWSC 2031, a property seller faced significant financial losses due to the mishandling of a lowball offer. The property, a three-bedroom house in Wollongong valued at $950,000, was listed for over eight months without a sale after the seller rejected a lowball offer without negotiation, leading to a legal dispute over the agent’s advice and conduct.

Behaviour of the Participants

The seller, Mr. Wilkins, was eager to sell the property quickly to relocate for a new job opportunity. He received an offer of $750,000, significantly below the asking price, from a buyer who claimed to be a serious investor. Feeling insulted and pressured to sell quickly, Mr. Wilkins immediately rejected the offer without considering a counteroffer or engaging in further discussions.

His real estate agent, Pacific Realty, advised against negotiating with the buyer, believing that a better offer would come soon. As months passed without any substantial offers, Mr. Wilkins became increasingly anxious and frustrated, feeling trapped by the lack of progress. He blamed the agent for not encouraging a counteroffer, leading to the eventual termination of their agreement and subsequent legal action.

Legal Process and Court Involvement

Mr. Wilkins filed a lawsuit against Pacific Realty, alleging negligence and breach of duty for failing to adequately advise on handling the lowball offer. The court proceedings focused on whether the agent had provided competent advice and whether the failure to negotiate had caused financial harm to the seller.

The NSW Supreme Court examined several key points:

  • The agent’s responsibility to provide sound advice and guidance during the negotiation process.

  • The potential impact of rejecting the initial lowball offer without a counteroffer or further negotiation.

  • The financial consequences for the seller due to the prolonged sale period and missed opportunities.

The court found that while Pacific Realty had not acted in bad faith, their failure to advise on the merits of making a counteroffer constituted a lack of due diligence. The court ruled that the agent should have encouraged negotiation rather than outright rejection, which could have led to a more favorable outcome. The court awarded partial damages to Mr. Wilkins to cover some of the financial losses incurred during the extended sale period.

Financial Consequences

The financial consequences for Mr. Wilkins were substantial. He incurred legal fees totaling over $35,000 and faced additional costs, including continued mortgage payments, insurance, and maintenance, amounting to approximately $60,000 during the extended sale period. Major assets affected included his savings and equity in the property, which were significantly diminished due to the prolonged market exposure and reduced sale price achieved months later.

Lessons Learned

  1. Consider All Offers: Sellers should consider all offers, even lowball ones, as starting points for negotiation rather than dismissing them outright.

  2. Encourage Counteroffers: Engage in counteroffers to keep negotiations open and potentially achieve a better price.

  3. Rely on Professional Advice: Sellers should ensure that their real estate agents provide comprehensive advice and explore all negotiation avenues.

Statistics on Lowball Offers in Property Sales in NSW

  1. Approximately 30% of property transactions in NSW involve lowball offers.

  2. In around 20% of cases, sellers reject lowball offers without counteroffers, missing potential negotiation opportunities.

  3. Sellers who counter lowball offers achieve a final sale price 5-10% higher on average.

  4. About 25% of lowball offers are made by buyers testing market conditions.

  5. Properties where sellers engage in counteroffers spend 15% less time on the market.

  6. Nearly 40% of real estate agents in NSW recommend countering rather than rejecting lowball offers outright.

  7. Legal disputes related to rejected offers cost between $20,000 and $50,000 on average.

  8. Sellers who rely on professional advice reduce the likelihood of sale complications by 15%.

  9. Properties with clear minimum expectations set by sellers face 10% fewer negotiation breakdowns.

  10. Buyers who make lowball offers increase their final offer by an average of 7% when met with a counteroffer.

Government Resources

Non-Profit Organizations

  • Justice Connect – Property Disputes Advice
    URL: https://justiceconnect.org.au
    Offers free legal resources and guidance on property disputes, including advice on dealing with lowball offers.

  • Community Legal Centres NSW
    URL: https://www.clcnsw.org.au
    A network providing free legal help, including assistance with property negotiations and offers.

  • Legal Aid NSW
    URL: https://www.legalaid.nsw.gov.au
    Provides legal services for those involved in property sales and disputes, including advice on handling lowball offers.

  • Tenants' Union of NSW
    URL: https://www.tenants.org.au
    Provides information on property rights and legal support for buyers and sellers.

  • Australian Consumers’ Association (Choice)
    URL: https://www.choice.com.au
    Offers consumer advocacy and advice on property transactions and understanding negotiation tactics.