Multiple Offers: What to know when buying a property
learn how to navigate the market
multiple offers don't have To be stressful if you employ the proper strategies
You’ve decided to enter the real estate market and buy a new home, whether for personal use or as an investment. But, the market is extremely hot and virtually every home is receiving multiple offers.
What are the best practices in handling the process and “winning” the deal. We explore the ins and outs on how to best position yourself for a win.
Multiple offers overview
Multiple offer situations are a hard reality when the current market conditions favour sellers. A sellers’ market occurs when the demand for housing significantly outweighs available supply. As a result of this, buyers end up competing for available housing, creating multiple offer situations.
In multiple offers buyers lose virtually all leverage during negotiations. Unlike in a balanced or buyers’ market, a sellers’ market heavily favours the home owner during negotiations. As such, buyers often have to bend over backwards to appease the seller. However, this does not mean a buyer should just do whatever the seller wants as this can lead to a series of issues for the buyer. For example, just because a seller wants a certain price does not mean they should receive it.
The art of winning in multiple offers rests with employing effective strategies, but also knowing when to walk away.
Primary terms of negotiation
In a typical transaction there are a number of common terms that the buyer and seller try to negotiate. Keep in mind that older, unique properties, and those that don’t fall within a traditional mould may require additional points of negotiation. We are going to focus on the typical suburban type transaction for the purpose of this article.
This does not need a lot of explanation, for obvious reasons. Buyers and sellers need to negotiate on the sale price. In multiple offers, the buyer has less leverage in this regard, and can lead to offering over the listing price.
2. Closing Date
Closing dates are one item that may still be up for negotiation during multiple offers. However, sometimes the seller needs a specific date or date range. In this case, it’s best the buyer tries to accommodate this as much as possible.
3. Conditions & Clauses
Typical conditions for a suburban transaction include: home inspection and obtaining financing approval. In some cases we also include clauses pertaining to a wood burning fireplace (WETT inspection), obtaining home insurance, etc. In multiple offers, inserting these conditions may put you at a disadvantage. We’ll explore this further later.
Most common clauses (e.g. chattels and fixtures in good working order) can still be used in multiple offers.
You can’t get ahead in real estate by sitting on the sidelines.
OFFER TERMS TO AVOID
When in multiple offers, there are some negotiable terms that won’t typically work, including:
The above are just some examples. Depending on the property in question, there could be other variables at play. For example, a buyer may want an Electrical Safety Authority (ESA) certificate for a finished basement. If the seller does not have one they may not accept an offer with this condition/clause if other competing offers don’t contain the same request.
Competing in multiple offers
There are some clear strategies to help position your offer in the best possible light.
1. Be Patient
For most buyers, there are always going to other options. Just because you really like one property doesn’t mean it’ll be the last. Try to avoid becoming emotionally attached to any property until you actually own it.
A sellers’ market can be frustrating for buyers. Just remember, if you have a good Realtor your day will come. When you’re out viewing homes try to have some fun. It’s not uncommon for us to treat our clients to lunch during showings so that we can relax and regroup.
2. Financial Preparation
Make sure you have pre-approval! This point cannot be stressed enough.
Work closely with your mortgage lender. We advise our clients to inform their lender as early as possible about an upcoming offer. A good mortgage advisor can also give you a notional yes or no as to whether you need a mortgage financing condition. If you’re financially stable enough, you might be able to remove this condition from your offer.
Do you need a trusted mortgage advisor? We highly recommend George Bajoon with RBC.
3. Pre-Offer Inspection
It amazes us how few buyers do this. If you have your sights on a property and the data supports your position to win the deal, consider having an inspection done beforehand.
Assuming the results are acceptable, this allows you to eliminate this condition from your offer with confidence. Doing so will place you in a more favourable position with the seller – not only do you not have the condition, you’ve also done your due diligence making you appear like a solid buyer.
4. Pull On Emotions
In multiple offers it can be a challenge as a buyer to convince the seller to work with you. If two offers are essentially identical, how does the seller choose between one or another? The answer is often a toss up.
One way to help is to create an emotional connection between you and the seller. The most effective way to do this is to write a personal letter to the seller explaining who you are and why you love the house. You’d be surprised how well this works – our clients have one numerous deals simply because of these letters. As recently as a couple of weeks ago we won a deal because of this in Milton.
As your Realtor, we also play a role here. We attempt to stand out from other Realtors by building a solid rapport with the listing agent. Doing so helps the listing agent support your offer to their client. It’s not uncommon for us to receive feedback from listing agents on how happy they were to work with us compared to others. Most agents don’t do this.
MULTIPLE OFFERS IN THE GTA
Regardless of where you live in the GTA the likelihood of you entering into multiple offers is quite high. In fact, the majority of markets surrounding Toronto and beyond are experiencing a sale price to list price ratio of 100% or higher.
Take a look at the data below from the Toronto Real Estate Board:
As is indicated in the chart, across the Greater Toronto Area, the sales price to listing price ratio is 101% as of October 2020. This means that on average properties are selling for 1% higher than their listing price. Only in some areas are we noticing a ratio of below 100% (e.g. King, Georgia, Caledon, etc). Most of these areas offer luxury homes, so it’s understandable that they may not receive multiple offers.
Furthermore, when we look at towns and semi-detached homes we actually see the ratio increase to 103% and 104% respectively. This highlights that the more affordable low-rise segment is outpacing all other market segments.
Conversely, condo’s across the GTA have a sales price to listing price ratio of 99%. This is consistent with the notion that condo’s have been the most impacted by Covid-19.
It’s very likely that a large proportion of properties that has a ratio of 100% or higher received multiple offers.
Whether you’re a first-time homebuyer or seasoned purchaser, dealing with multiple offers can add an element of additional stress to the process. But, if you employ the correct strategies and hire a reputable agent who knows how to navigate the market, then you will succeed!
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