What Is Lowballing?
A lowball offer is a slang term for an offer that is significantly below the seller’s asking price, or a quote that is deliberately lower than the price the seller intends to charge. To lowball also means to deliberately give a false estimate for something. Usually, the potential buyer making the lowball offer is not actually expecting the seller to accept; instead, it can be used as a way to start or push forward negotiations.
KEY TAKEAWAYS
- A lowball offer refers to an offer that is far less than the seller's asking price or is deliberately too low, as a means of starting negotiations.
- To lowball also means to throw out a purposely lower than reasonable number to see how the seller will react.
- Lowball offers are typically used as an incentive to get a seller to lower the price on something, particularly if the seller is in need of quick funding.
Understanding Lowball Offers
Lowball offers are most commonly used as a tactic to put pressure on a seller who might need to liquidate assets quickly. Alternatively, when negotiating a price, prospective buyers might begin negotiations with a low ball offer to gauge the seller's expectations of the asset’s fair value. This can give the buyer an advantage as the negotiations continue.
Lowball offers are also used as a deliberately deceptive sales tactic that involves initially quoting a low price and then claiming the quote was a mistake and that the real price is higher. Some customers may be put off by this tactic, seeing it as something of a bait-and-switch, but others may accept the higher price because they have already decided to make the purchase.
For example, lowballing can be an effective tactic when trying to buy a home, particularly if it's in a buyer's market when there are a lot of properties around. For example, a potential buyer might purposely make an offer 15% below the asking price as a way to start negotiations and end up with a price that is ultimately 5% below the asking price.
Low balling an offer works best when the buyer has an upper-hand, giving them room to negotiate. If the seller already has the advantage, such as a tight housing market with few homes available, then a buyer trying to low ball the price is unlikely to get good results.
Example of Lowballing
In the LIBOR scandal during the financial crisis in 2008, banks in the U.K., including Barclays, Lloyds Banking Group and Royal Bank of Scotland, kept LIBOR rates artificially low, by "lowballing” their LIBOR submissions.
This false estimate not only helped them make a profit on their trading books but made them seem more creditworthy than they really were. This lowballing allegedly contributed to the failure of a number of American banks.1
