• The LAO is the minimum price a seller will accept for a property.
• Factors like market conditions, the seller’s financial situation, and the property’s perceived value influence the LAO.
• Knowing the LAO can help buyers make informed decisions and negotiate effectively.
• LAO is an important consideration in investment strategies and can impact the overall profitability of a real estate deal.

The lowest allowable offer is effectively the seller’s bottom line—the minimum price they’re willing to accept for their property. It’s not necessarily a fixed, written-in-stone number but rather a dynamic figure that shifts based on many factors.

Knowing the LAO helps buyers make smart decisions and negotiate effectively. By understanding the seller’s bottom line, you can better judge if the asking price is reasonable.

Some real estate investors will start by determining their Maximum Allowable Offer (MAO), the highest amount they can pay for a property and realistically expect to earn a profit when they sell or lease it. However, the Lowest Allowable Offer (LAO) takes a different approach. Rather than trying to appease the seller by offering them as much as possible, the LAO cuts straight to the bottom line in an effort to see how motivated the seller truly is and to maximize the investor’s potential profit margin on the deal.

If the Lowest Acceptable Offer (LAO) simply will not work for the seller, then the buyer can start negotiating up until they find the seller’s LAO.

LAO in Real Estate Investing

The lowest allowable offer is a critical consideration in real estate investment strategies. This knowledge can also save the investor from overpaying, which is a big mistake.

Smart investors know that understanding the LAO is key to making good decisions. Before even considering buying a property, they’ll research the LAO for similar homes in the area. This helps them determine the maximum price they should offer, ensuring they don’t overpay and hurt their investment’s profitability

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They also use the LAO to determine whether an investment is worth pursuing. If the LAO is much higher than what they’re willing to pay, it might mean the property isn’t a good investment, and they should look for other opportunities.

Some bold real estate investors involved in wholesaling also often use the LAO as a strategic way to “lowball” offers, but this is typically a game of skill, chance, and finding the right seller.

Several factors can influence the lowest allowable offer in a real estate transaction, including:

Market Conditions

• Supply and demand: In a seller’s market, where demand is high and supply is low, sellers can often command a higher price (and thus a higher LAO). But in a buyer’s market, where properties linger, sellers might be more willing to accept a lower LAO.
• Comparable sales: The prices of recently sold properties in the same area give valuable insights into the market and help sellers determine a reasonable LAO.

Seller’s Motivations

• Financial situation: A seller facing financial difficulties or a tight deadline might be more inclined to accept a lower LAO to sell quickly.
• Emotional attachment: Some sellers have strong emotional ties to their property, which can influence their willingness to accept a lower LAO.
• Investment goals: A seller’s long-term investment goals, like needing immediate cash or wanting to maximize profits, can shape their LAO.

Property Characteristics

• Location: A property’s desirability, like being close to amenities, schools, or transportation, can impact the LAO.
• Condition: The property’s overall condition, including any needed repairs or renovations (like a fixer-upper), can affect the seller’s willingness to accept a lower LAO.
• Unique features: Distinctive characteristics, like historical or cultural significance or architectural design, might allow sellers to command a higher LAO.

Negotiation Strategies

• Buyer’s approach: The buyer’s negotiation tactics, such as their initial offer and willingness to compromise, can influence the seller’s perception of the LAO.
• Seller’s flexibility: The seller’s openness to negotiations and ability to assess the market realistically can impact the final LAO.

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To figure out the LAO, it’s essential to look at comps (short for comparables), which are recent sales of similar properties in the same area. These comps give you a good idea of what the market is doing and help both buyers and sellers set a fair price.

When looking at comps, consider things like:

• Property type: Is it a single-family home, a townhouse, or a condo?
• Size: How big is it? How many bedrooms and bathrooms does it have?
• Location: Where is it located? Is it in a good neighborhood, close to amenities?
• Condition: Is it renovated, well-maintained, or in need of repairs?
• Sale date: Recent sales are more helpful than older ones.

By comparing prices of similar properties, sellers can get a better sense of what their home is worth and set a reasonable LAO. Buyers, on the other hand, can use this information to make smart offers and negotiate effectively.

Remember, while comps are a great starting point, they’re not the whole story. You also need to consider the seller’s motivation and the overall market conditions to arrive at a fair price that works for everyone.

When negotiating the LAO, you need to be strategic. Communicate clearly and understand what both parties want.

As a buyer, do your homework. Research the market, look at comparable sales, and try to understand why the seller is selling. This will help you make a fair offer that’s close to the LAO without upsetting the seller.

When you make an offer, be respectful and don’t lowball. Start with a reasonable price and be prepared to negotiate fairly. Offer things like a faster closing or taking on some repairs to make your offer more appealing.

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As a seller, price your property realistically based on the market and comparable sales. Overpricing can scare away buyers and make it harder to sell. Be open to negotiation and try to see things from the buyer’s perspective, but don’t feel pressured to accept an offer that’s way below your LAO.

The key for both buyers and sellers is to be willing to compromise and find a solution that works for everyone. Good communication, empathy, and a willingness to find common ground can make all the difference in successfully negotiating the LAO.

What if my offer is below the LAO?

If your offer is too low, the seller will probably say no. But there are exceptions. If the seller is really motivated to sell, especially in a buyer’s market, they might consider an offer below their LAO. If you see an opportunity, be quick, but don’t forget to protect your own interests and finances.

How can I use the LAO to my advantage as a buyer?

Understanding the LAO gives you power in negotiations as a buyer. Offering a price close to the LAO can help you get a better deal while still being fair to the seller. Be careful not to go too low, or you might damage the relationship and lose the chance to buy the property.

Should I always try to negotiate the LAO?

Not necessarily. While negotiating the LAO can be a good strategy, consider the market and the seller’s situation. In a hot market, pushing the LAO too low might backfire. The goal is to be assertive but respectful in your negotiations.

1. Call Porter. “Wholesalers: Tackle the “Low Ball Offer” Objection.”
2. Realtor.com. “What Is a Seller’s Market? A Tough Road for Homebuyers.”
3. Gimme-Shelter. “What is Desirability? | Real Estate Definition.”
4. MDPI. “The Impact of the Historical–Architectural Component on Property Value.”
5. Roofstock. “How to run your own comps to assess the value of a home.”