Silicon Valley real estate offers few simple answers but many recurring questions. One of them is whether or not you should write a “lowball offer“. So the first question is this: what makes an offer a lowball one?

It’s entirely relative to how the market in that area (not the county, not the state, but that particular area) is selling.  If houses in one area of San Jose are selling within 1% of list price and you come in 5% under, the seller may feel insulted.  But if properties are routinely selling at 10% under list price and your offer is at 13% under, that’s not such a big deal. So keep an eye on that.

Most of all, you need to run the comps and pinpoint the pricing.  Sometimes the list price is LOWER than market value and in that case, the seller is probably expecting overbids. In other cases, the seller may be way high just to “test the market“.  At other times, the Santa Clara County area home is priced exactly at what the market can bear.  So you and your agent must absolutely crunch the numbers to establish the probable buyer’s value or probable market value for that particular piece of San Jose area real estate.

If you do submit a lowfall offer realize that the risk is that the seller will be insulted and then won’t be amenable to negotiation.  What I see most often is that a low initial offer results in a very high counter offer.  (E.G., house is listed for $1 million, offer comes in at $800,000 and seller counters to $995,000.) Throwing a lowball offer out on a home you REALLY want is probably not a very wise idea as the net result will probably not be favorable to your own interests.

Good negotiation is to be expected but if done poorly or overly aggressively, it can really backfire! So crunch the numbers, be sensitive to the local situation, and put a good foot forward.

If you’re out to buy a Silicon Valley home this year, you may be tempted to look at real estate priced far above your ability to pay and hope that you can write a low offer that the seller will accept.

Don’t count on it.

Lowball offers are contracts written substantially below the list price (and often well below market price).  How low is too low? It really depends on the micro-market of the home you’re interested in (the neighborhood, price range, school district, etc.).  In most of Silicon Valley, houses, condos and townhouses sell within 5% of list price most of the time. The average list price to sales price ratio is usually closer to 1 – 3% of list price. 

My usuall advice to buyers is this: if you don’t think that the home is worth within 5% of list price, then keep looking until you find a home that is.  Most of the time, sellers aren’t prepared to come down more than a few percent. 
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