Working with Multiple Offers.
Thursday Apr 29th, 2021
Working with Multiple Offers.
The demand is higher, driving prices up. The market is very competitive. Many buyers are competing for the same property.
What do you think as a buyer you can do to gain an edge? Plan. Make sure you know the maximum amount of financing you can secure before you even start to look at houses. Get pre-approved, not just pre-qualified. Think ahead. If a type of property in your desired neighbourhood is typically selling for 5% above asking then look at houses that are listed 5% below your maximum pre-approved financing. This way you will avoid getting in over your head and not be continuously disappointed when your offers are being rejected.
Once all the offers have been presented to the seller. They have the option of 1. Accepting one. 2. Working with one. 3. Sending them all back in the hopes that at least one of the buyers improves his offer.
How a multiple offer situation typically works.
When in competition with other buyers. A set time and date is made to present offers to the seller - usually in the order of registration.
A registered offer is one that is signed and the listing brokerage has been notified.
How much should you improve? You are not given that information. It is common for these rounds of offers to happen twice, sometimes three.
There are times when the seller accepts an offer in the first round.
The buyers should always be informed of the number of offers there are. None of the buyers will know the terms of any of the other offers, price, conditions, closing date etc.
Bidding war sounds scary. I prefer the term multiple offers. You may only get one shot at it so put your best foot forward.
Here is a way to see if the offer you are putting in is really your best. Ask yourself, if I found out this home sold for $500 more tomorrow would I have paid for it? Would I be upset? Keep doing this until you reach the maximum amount you would gladly walk away from if someone offered even a small amount more. You will have no regrets.
Think about it from the seller's perspective. All of them want the same thing.
1. The least amount of/or no conditions.
In normal market conditions, the buyer would likely have a condition on a satisfactory home inspection and a condition on them obtaining satisfactory financing. These conditions increase the certainty for the buyer but decrease the certainty for the seller.
A firm or "cash" offer contains no conditions. Once all parties have signed the offer, the deal is done. Experience shows that if there are more than 5 offers you will not win without presenting a firm offer.
2.Go with deposit cheque/bank draft.
I recommend that your offer be presented with the deposit, bank draft. Why? Often a firm deal falls apart because the buyer doesn't bring in the deposit cheque the next day. Plus you are showing the seller how serious you are about purchasing their home.
How much of a deposit? I recommend at least 5% of the purchase price. Remember, this is applied to the purchase price on closing. The more you can handle increases the odds of your offer being accepted.
3. Highest price. Remember we are looking at it from the seller's perspective.
4. Ideal closing date.
Be prepared to offer the seller his desired closing date. If a specific closing date is posted on the MLS listing, it likely means the seller has purchased a home and would like to match the closings dates as close as possible.
Please note these four things are written in order of importance. There are times when a seller will accept a lower price with an offer with no conditions versus an offer with a higher price and conditions.
Be with your agent when the offer is being presented. Again, this shows the seller how serious you are as you will be there if there are any small changes to the offer that need your initials. You can do them right there and then.
Past comparable sales are irrelevant. The market is moving too fast to establish value by comparing the selling house to past sales of comparable properties. Throw logic out the window. There are times when the market does not make sense. There are buyers who have lost out on previous offers or other buyers who have run out of time and may get caught up in the emotion and go way beyond the price of other offers.
Next time could be worse. How much do I have to pay over the list price now so I avoid competing again? This is not an attractive proposition, but it is true.
Factors that determine you choosing the right offer price - your own market experience- your timeline - the number of offers and how many homes you are interested in.
I smile when people say, I will never go into a multiple offer situation. Unless you want to buy a home that no one else wants it is often unavoidable.
If you want that house, you may have to go up against other buyers.
Do not ever forget that you are 100% in control.
If you are not sure you do not have to do anything.
Listen to your agent.
Do not get caught up in the emotion.
" I am excited about it, but you've got to keep things in perspective. You don't want to run out there crazy, like a chicken with no head. There's a job to do. There is a lot at stake, but you can't get caught up in the emotion." Carlos Delgado.
Be confident that you will find a great home at the right price if you stick to your values and what is important to you. Even if the price is higher than the last sale.