This is written from the perspective of the buyer but also should be considered from a seller's POV.
When you are placing an offer in competition (multiple offers) it can be quite intimidating, and overwhelming, with thousands of dollars on the line, and your dream home within your grasp. The key to getting the deal is a sound strategy, and most of the time the right amount offered so that your offer is seriously considered, and at least given a fighting chance to use the strategy. Below are the key components that are considered when the seller and their agent are looking at your offer.
First, how do conditions work? Well, you place them into the offer, when you do your due diligence and complete the condition (usually to the buyers satisfactory) then you take them out, by submitting a notice of fulfilment.
Typically (in a more balanced market) an offer will have a finance and home inspection condition in them. Allowing a buyer the time to do some due diligence to move forward through the deal with confidence.
Truth is in a multiple offer scenario being risk-averse usually will not work in the buyer's favour, but being strategic will, we can have another conversation about how to place an offer without conditions that still protects you offline.
We have written an article about the risk of a home not appraising, and the remedy to a situation as such. It rarely happens, especially when you're in our care ;) but it is something to consider, as multiple offer scenarios can get out of hand sometimes.
For a condo purchase, you will also want to place an offer that is conditional on the review of a status certificate.
Personally, when I am representing a seller I fairly try to get the unconditional offers to match/ exceed the offers with conditions if they aren't already and take the unconditional offer. The unconditional offer, along with a sound buyer is worth their weight in gold.
Read our other article on clever strategies and conditions here.
Also, look at the laymen's terms version of a blank Agreement of purchase and sale
We will never know what another offer is, as per RECO (realtors governing body) the only thing that is required for the listing broker to reveal is the number of offers, and if there is a multiple representation situation. (where the listing brokerage is acting on behalf of one of the buyers and the seller) The only way you will ever come to know what another offer is, is if you lose the bid, the selling price would then become available once the cheque has been delivered and the conditions have been removed (if any).
Today (Feb 2020) $10,000 equates to approx $35/ month in mortgage payments. Make sure you use a mortgage calculator to know what this number is when you start the searching process. If you are in tight competition you will want to quickly equate what you will be most comfortable with. See our mortgage calculator here.
Also, one should consider common psychology. Most people will work in round numbers so use that to your advantage. If the property is listed at $849,900 and your agent makes an evaluation of $910,000 you should be placing your offer around $912,800. Also, have your agent look at what the neighbourhood trend is for % of list vs. ask and strategize that way as well. These drastic differences bring me to my next point.
Just because you are seeing homes priced at $849,900 and selling for $910,000-920,000 it does not mean that the market is going crazy and the prices are shooting up that much. When the listing agent and their seller sat down they probably knew that the home should sell in the $900,000 range. They looked at the demand factor and other market indicators and priced it strategically to create a buzz, then they got 10 offers, of the 10 offers five were probably around asking price. Two were in the mid-range above asking and below expectations, and the other 3 were probably around/ above what the seller and the seller's agent were considering fair market value. Having an agent who undersands this, and is able to communicate offer instructions effectively can go a long way in getting more offers as serious competitors, by sending an email on offer morning much like this one. (I promise not a lot of people use a strategy like us)
Each sale is circumstantial but you should know that sometimes a condition can be worth $5,0000, $10,000 or $20,000 to a seller as they just want to have the home sold firm and not have to think about it any more. I've been on both the sellers and buyers side of the deal where the far better higher offer $ wise was not the winner.
At the end of the day what you really need to ask yourself is "Will I be upset if I lose this home over $5000?" which in this GTA market usually represents less than 0.5% of a selling price
# of Offers
We use a rule of thumb, anything over $700,000 expect to pay approx $10,000 per offer over asking price. Under $700,000 about $5000.
Don't forget to look at the neighbourhood trend is for % of list vs. ask and strategize.
When the strategy is set up for multiple offers the seller really gets to set the tone, and buyers usually go with the date that the seller needs.
If the home is vacant they usually want it to close right away. If it is owner-occupied then a 60-90 day close usually works. I like to suggest closing on a Thursday, it allows you the buyer to move in over the weekend.
Its also a good idea to get a bridge loan, (when possible) for a week, meaning own both your current home and your new home at the same time for one week. This takes away all of the stress during moving week/ day.
A healthy deposit is usually required to be seriously considered. Ideally, if you are placing a firm offer (no conditions) you should get the Bank draft prepared to be placed with your offer. If it is not possible to get the bank draft to send in with your offer, a good idea would be to show that you have the liquid funds and will be bringing the deposit within the required 24 hours. If the deposit is not handed over to the listing brokerage within 24 hours of acceptance then the deal is essentially void. MAKE SURE THAT THESE AMOUNTS ARE LIQUID AND READILY AVAILABLE WHILE YOU ARE HOUSE SHOPPING
Lastly, to avoid the entire nerve-racking situation altogether you may opt to place your offer before the date that the seller is calling for offers. Generally, you need to do this with no conditions, and an ample amount over what would be considered to be market value. Some listings will not allow it at all. Some will. So make sure you ask about the property you are interested in.
Alternatively, in this strong seller's market you and your agent should be working to find properties off-market. We have a few strategies for doing so. Talk to us about them.
As a seller, you should never consider the pre-emptive offer, because that person was very likely going to be placing their offer on your offer night anyway. The only reason you may want to consider it would be timing. (Is there another coming soon listing in your neighbourhood that they may like more?)
You and the presentation
Have your agent craft a letter/ email like the following to submit with your offer. It does a few things:
a) Gives the seller confidence in you the buyer.
b) Let's the listing agent know they are dealing with a professional.
c) Educates the seller about some of the risk factors they may have not considered when they just wanted to see the higher number $$$
d) It personalizes the deal. I've seen sellers who took $10,000 less because they wanted to leave their current neighbours with nice young families who will be liked, and mesh well with the community.
e) Gets the seller to consider a strategy where they give you the first chance by countering your offer.
When possible make sure you get your agent to present the offer in person. Either waiting in your car or at a Timmys around the corner it allows you to be readily accessible for changes needed and lets the seller know you are serious about getting the deal done. There are a variety of reasons that this strategy works out in you, the buyer's favour, mostly it allows for no funny business, and it also allows a seller to counter your offer with their expectation rather than just letting your deal die and consider the higher offer. In a multiple offer whenever it is possible (not likely) have your agent ask the sellers agent to counter your offer, it keeps you in the running and puts the ball in your court with a decision to make.
House-keeping notes, after you win the deal
- Make sure you drop the deposit cheque ASAP.
- Once the deal is firm, send the listing and the completed deal to your mortgagee, and Real estate lawyer
- Gather as much info on your possible new home as you can. See
a) Details we gather
b) Questions to ask listing agents
You are now armed with some valuable information about winning a multiple offer bid. Use it to your advantage and get your dream home. Call us today to put this along with our other strategies into action.
See how your seller is thinking about your offer here. http://www.buschteam.ca/b/blog/sellers/questions-for-your-buyer.html
Still wondering if we're the right fit? See how we go all-out-for-you!