Ok, enough with the multiple offers already!
As one of the city’s leading income property agents, I often find myself on the losing end of the multiple offer process these days. I won’t say how many more deals I would have completed this year if I didn’t have to compete, but it’s definitely in the double digits. The reason is that duplexes and triplexes make a lot of fiscal sense and are always in high demand. When the market is hot, these properties make even more sense. My problem is that I set a price ceiling and stick to it. I don’t like my clients to get caught up in the emotion of it all. And invariably when there are a few offers at the table, my number isn’t high enough. Oh, and did I mention you better not even think about having a condition in your offer. No financing, inspections, verification of rents – nothing that muddies up your offer will be tolerated.
Case and point: Last week, there was a lovely triplex in the Beach, right near the water that was listed for $799K. It had six offers on it and ended up trading for $977K – that’s almost $200K over the asking price. Now, I am happy for the winner but I can’t begin to fathom the justification for paying such a high price. This isn’t good for the market, for the winners or the losers. It can just make the entire house-buying process a very trying experience. That is the theme of this month – the long and short of offer competition. I’m hoping that the current demand subsides a little bit so that we can get back to normal, where there is one house for one client.
In a Sellers market like we are currently experiencing in Toronto there are more buyers than homes for sale. Prices may rise, and the days a home is on the market may shorten to a week or even less than a day. Agents decide to “holdback” the offer date to try and create a feeding frenzy. Some homes will even sell before they hit the computer. That means that sellers can often expect to see multiple offers. How can you position your offer to be the one the seller accepts? The best way is to gain an understanding of how multiple offers work and how they benefit the seller. Multiple offers mean that the seller has his/her pick of offers, but that doesn’t necessarily mean a disadvantage for you as a buyer. You just have to determine how badly do you really want this particular home?
There are two things that matter to the seller – price and terms. They want the highest price possible, and the best terms available. Both of these areas leave room for negotiation. Just because a seller is entertaining multiple offers doesn’t mean you don’t have a chance. You just have to hit the right note with the seller that the other contracts don’t.
Just to give you an idea of how important terms are to the seller, let’s look at a hypothetical situation. You offer a seller the highest price for their home, but you put in the contract a financing or home inspection condition. It may seem reasonable to you, but these are terms that the seller has no reason to accept.
The seller will only accept terms which meet their own needs, so keep contingencies to a minimum. In a multiple offer situation, the seller is not under any obligation to negotiate with the first buyer who submits an offer. So, if your offer is not the first offer, don’t panic. Because the seller has the liberty of choosing the best offer to negotiate, your offer stands a chance of being noticed if it has the most favourable terms. The seller will accept the offer that best reflects his or her needs. They not only consider price, they also look at such things as financing, closing dates and possession dates. That means room to negotiate for you. Believe it or not, the highest price doesn’t always buy the home. Sellers have a number of needs aside from price; they want a quick closing, or a delayed possession, or they may wish to exclude items in the home, and so on. Any offer which puts any of these goals at risk will not be accepted.
A buyer may make the highest offer, but perhaps has not been qualified by a lender. A seller who accepts an offer from an unqualified buyer is taking a substantial risk. Should the offer fall through because the buyer fails to qualify for financing, the home will lose valuable marketing exposure and advantage. Also, the seller may have a special need that is more important to them than price. For example, a seller may have a need to sell quickly, but remain in the home for a period of time until school is out or until a transfer takes place. Your ability to negotiate on this point may be more important than coming up with the highest dollar amount. You can offer a short-term lease post-closing or offer to delay possession to accommodate your seller. You can do a number of things to get the seller’s attention – offer to pay all closing costs, to pay full price, or a little above the asking price.
How do you know how many other offers there really are? What about the listing agent’s own supposed clients who wish to submit an offer? I’ve had some of my buyers complain that they believe the listing agent is lying and only trying to push up their offer when they are told there are multiple offers. They assume that the seller is simply trying to push up the price by claiming there are other offers when none actually exist.
Revealing the status of multiple offers is up to the seller. The cold hard facts are that the buyer has to sit and wait for a response from the seller (depending on whether or not he wrote in a deadline for responding). Nevertheless, the buyer has no “rights” to know if there are more offers. It’s not the best circumstances in which to do good business, but that’s just the way it is.
Fall is here. Happy Thanksgiving everyone.