Have you tried to purchase a home lately? If you have then you know how challenging it is. If you haven't then strap in! It usually plays out a little like this. You find that perfect home. It seems priced right. Maybe even too low. Too good to be true? probably. Your agent tells you offers are being held back for about a week. That gives all the people who want to see the property a chance to can get in and see it. Some hot properties may see over 100 showings in a week. Assuming the property doesn't accept a pre-emtive (bully) offer before the offer date, there might be anywhere from 2-10 + offers on the property and prospective buyers are faced with what feels like a game of pin the tail on the donkey against numerous other offers with little to no indication what each contains.
This common selling strategy is designed to work in the sellers favour in a market where inventory is low and buyers are banging down the doors. For buyers it can be painful, frustrating, infuriating, stressful and even exhausting. There are many arguments for and against the creation of these bidding wars but nevertheless if you are planning to buy a home in the near future you need to arm yourself with some strategies that work to help you get the home for a good price with conditions that protect your best interest.
Forget about the asking price. It most likely priced below market value and if anything will only work to give a good buyers agent an indication of just how many showings/offers the property might see. The tricky part here is to ensure your Realtor separates the home price into categories which help the buyer understand the list price vs current market value vs what the house might sell for. Its not a science but the more the home is analyzed to understand the market value vs what is happening in the buyers market, the more a prospective buyer will come to understand that the asking price is usually just a way to get more people through the door which generally translates into more offers potentially getting a higher price to the seller. More likely than not, the home will have a sign on it in seven days that says "sold over asking" so don't spend too much time on the asking price.
Have you heard that Ontario lottery and gaming commercial that ends with "know your limit and play within it?" This is also good home buying advice. Ensure you have a mortgage pre-approval ready in advance so that a financing condition is not necessary on your offer. This reduces a potential condition in an offer that other buyers may need and reduces the sellers risk in working with your offer. Essentially, by being prepared in advance and knowing what you can afford, you are giving yourself at an advantage over those that haven't ironed this out prior to submitting an offer. Its also helpful as part of the overall discussion of what the possible selling price will be because if the asking price is at the top of your budget but the realistic sell price will be well above it then you can move on.
Make Your Offer Stand Out By Reducing The Sellers Risk Choosing Yours!
A seller looking through offers will generally want to take the highest price with the fewest conditions to mitigate the risk of a deal falling apart due to financing or inspection issues. That means buyers need to be prepared in order to make their offer as simple yet attractive as possible. Get in as early as possible to see the property to work through any potential concerns well before the offer date. A good listing agent will have a home inspection done prior to listing the property to provide to prospective buyers. If there is no inspection and you want one done (always recommended) the earlier you see the property and book an inspection the more time you have to review and clarify questions that might arise from the inspection. A seller may take an offer with a lower price but fewer conditions than one with a higher price and more conditions so try and satisfy any concerns with the property BEFORE you make an offer.
Although buyers often have a 24hr period to provide the deposit, it is always beneficial to have that bank draft ready and in hand when the offer is presented. Having this prepared and ready shows your serious and committed and again reduces the risk of the seller accepting an offer where the buyer needs 24hrs to get the deposit. If two offers are the same price and have generally similar conditions but only one buyer brought the deposit guess who's offer is going to be chosen. This can be an extremely painful way to loose your dream home, don't let not having the deposit cost you the deal.
DO NOT Assume There Will Be A Second Chance To Improve Your Offer
I have been in offer presentations that went on for hours and hours and some that were over in 20 minutes. Ensure your Realtor gets a good understanding from the sellers agent how they intend to handle the offers. Most often there is only one chance to submit your best offer and second chances only happen when two or more offers are virtually the same so in most cases it is important to put your best foot forward the first time.
Remove The Emotion
To a large degree this is your Realtors job but really try to avoid getting caught into the highs and lows of the "bidding war" process. It is that emotion that can get people into trouble with over paying for a home that patience may have found for less. There is always another deal around the corner and there can be consequences with over paying that you don't want to have to deal with. You don't want to get into a situation where you've done your homework, strategized and prepared your financing, satisfied your inspection and then get excited and over pay for house that the bank suddenly won't appraise and your on the hook for the difference because you didn't include the conditions that protected you (financing, appraisal etc). STICK TO THE PLAN that you and your professional agent come up with prior to presenting an offer.
There Will Be Other Opportunities
Although the market is brutally tight and listings are often scarce. The best advice I can provide to buyers is that if an offer is not accepted on the offer date, although disappointing, there will be other opportunities. In this market, with offer dates, multiple offers, bidding wars on almost all single family detached listings it is important that eager buyers participate in the process to get a feel for how it works. Buyers that want to stay out of bidding wars may find themselves on the sidelines a long time before they find the home they love. There may be a few lost offers on the road to get to perfect home but put your trust in a good Realtor who can work you through process and can come up with winning strategy.
The Bully Offer
Thats it! This is the home! You don't want to wait a week to make your offer and your ready to go! You know the neighbourhood, You've seen the pre listing inspection, your financing is good to go and there are no issues that you can see with this property. It might be time to try and "bully" your way into the win column. Assuming the sellers will "entertain the right to review pre-emptive offers" this is a strategy that should be discussed with your Realtor. This can be successful but can also have negative consequences if unsuccesful. A "bully" offer must be one that is good enough for the sellers to throw their best made plans and selling strategy out the window. Buyers should have the conversation with their Realtor about what they would project the house to sell for on offer night in order to make it a bully offer worth presenting. Your better have a great Realtor in your corner to pull It off successfully so you protect yourself as much as possible.
Ultimately, planning ahead will be what makes the difference between a sucessful offer and a unsuccessful one. Contact me today to talk more about some of the buyers strategies that work and feel free to leave your comments and opinions about your buying experience below.
Posted by Paul Ambler on