By: Ken Tripp
Winning Multiple Offers
Tags: Homes in Ottawa, Multiple offers, First Time Buyer, Home purchase Ottawa, Home Buying and Selling
Bidding war. There are no two sweeter words for a home seller, and today’s seller’s market may conjure up images of hitting the jackpot on your home by pitting buyers against each other to “win” your home with the highest bid. We’ve hear it happening in Toronto and Vancouver, where homes routinely sell for hundreds of thousands of dollars over asking price...Meanwhile, buyers may dread the idea of a bidding war, worrying they will either get caught up in the competition and pay too much, or risk losing a house they love. So..is Ottawa the next hotbed of multiple offer activity?
Before you start counting your cash – or bracing for battle – it’s important to understand the difference between a bidding war and a multiple offer situation, and set your expectations accordingly.
It's important to consider the difference between a seller’s market in Ottawa and a seller’s market in the GTA.
Here, it’s not as much a case of a ‘bidding war’ as it is that there are two or more bidders, all with reasonable expectations and knowledge of the market value overall. Keep in mind that these multiple-offer situations do not always result in a sale that is over asking price. Each case is unique, so ask your realtor for case-specific advice.
There are many factors that come into play when getting into a multiple offer situation. Here are 10 things for both buyers and sellers to consider during the multiple offer process.
1. Dollars, Deposit and Financing
Many people focus on the offer amount as the paramount decision-making factor. Although it is true that money talks, there are other important aspects to consider. These include the deposit amount, especially as it relates to financing conditions.
Some sellers will see a large deposit as a stronger offer, even though the deposit is virtually impossible to be lost to the seller in the process of buying a home. It gives sellers comfort that they have your money, even though they don’t. It is in a trust account until closing. But it can work in your favor to sway the sellers to your offer.
If you are going to include a financing condition, a large deposit can hold value, and can also give a seller comfort that you are likely to be approved for financing if you have a large amount of cash on hand to be held in trust until closing.
2. Dates & Timing
The closing date and the date of the expiry of conditions can play a big part as well.
Consider a scenario when a very long closing or very quick closing would be of more appeal to a seller than the dollars and cents, should those amounts in the offer all be relatively close..Some sellers may want cash and a quick closing, versus a bit higher dollar amount. Others may have reason to prefer a longer closing to put things in place with their next purchase or build. With vacation homes, some sellers want the time to finish out the season. Timing matters with closing dates and can have a huge impact.
The other date to consider is the length of time for your conditional period. If conditions are even accepted in a multiple offer situation, they need to be minimal and removed sooner rather than later.
The strength of your offer is not based on price alone. Although it is not uncommon in this region for conditions to be accepted in a multiple offer situation, you need to seriously consider the value of having those conditions, versus making your offer firm and binding upon acceptance by the seller.
This will differ from seller to seller, but often a firm offer out of the gate will win over a higher-priced offer which will require the seller to wait on removal of conditions before realizing the final sale. Depending on the value of the home in question, offers $5,000 lower can win out, and even as much as $30,000 lower on higher-priced homes, based on the offer being free of conditions. Sometimes sellers will take less knowing that the deal is locked up.
4. Irrevocable: Long, Short or as Requested?
The irrevocable period given with an offer (the time a seller has to accept the offer as delivered) can also play an enormous part in the way a multiple offer situation is handled.
Pressing a seller to respond quickly can backfire on you, or, with the right dollar amount, can put you ahead of the competition. It's a delicate balance of timing and price. A long irrevocable can allow a seller the time to make the best choice, or even to further play the offers against one another. It could also allow them to beat the bushes a bit more to try and produce yet another offer.
Before making a decision regarding your irrevocable, discuss the options in detail with your realtor.
When you’re in a multiple offer situation as a buyer, you might want to consider leaving out that extra fridge, the nice sectional, the snow blower, or whatever else you were hoping would be thrown into the deal.
This is the item that can seem to be the most innocuous and unimportant, but can be the thorn in the side of the seller and crush a deal, even without a multiple offer situation.There is a 99 per cent chance that your idea of the value of that item is dramatically different than the seller’s perception. Don’t complicate things with so many moving parts in the process.
2. Use Irrevocables to Play for Time
If the irrevocable period on the offers allows enough time, a seller can begin a dialogue with one party and discuss how much better they are willing to make their offer, while still being within the time frame to accept any of the offers on the table. Going back to each buyer individually to see if any are willing to improve their offer is a strategy that can greatly benefit a seller, but should be done with full disclosure. Proper communication during this process with all parties is important to keep things cordial and positive.
It’s gamesmanship at its best, but don’t take it personally or assume you’re being played. The goal of a listing agent is to get the most money possible for the seller, and the opposite is true of a buying agent. So, irrevocable periods can play a massive part in that process on both sides.
3. Holding Off Offers and Bully Offers
You may hear a listing agent say they aren’t looking at offers until a certain day and time. This gives the listing some time to gather steam and get some hype, in order to produce more interest and more offers.
During the period where the listing agent is holding off offers, you will sometimes see a ‘bully offer’ – the buyer ignores the rules given by the listing agent and delivers an offer in advance of the hold-off date in order to get the property without having to compete.
These offers will usually be enticing enough that the seller will seriously consider taking that offer in lieu of going to a multiple offer situation. However, there is a new twist that could make bully offers more difficult or even impossible: a listing agent can have an official document signed that does not allow any offers to be presented to the seller until a certain date and time. This must be disclosed with the listing so that the hold-off date and time is known by all.This prevents a bully offer from coming in and ruining the process.
4. Commission Adjustments
In some cases, a brokerage may adjust its listing agreement at the time of an offer in order to slightly reduce fees to a seller and sweeten the deal. In the case of multiple offers, if there are any adjustments being made that will affect the bottom line of the offer, these must be fully disclosed.
5. Phantom Offers
As a buyer, the fear is that a slimy sales agent will claim, “We have another offer coming in as well,” in order to drive up your offer price (sometimes referred to as a “phantom offer”). The good news here is that amendments to the Real Estate Brokers Act (Bill 55), which came into effect in July 2015, have made sure such posturing to try to raise the offer amount is no longer possible.
At this time, it is against RECO (Real Estate Council of Ontario) regulations to posture that there is another offer, until it is written, signed and in your hands. Further, at any time, a request may be made for RECO to confirm the actual number of offers that were registered on a particular home. Brokerages are required to keep all registered offers on file for this purpose.
This is something every buyer and seller should know about before entering a multiple offer situation. In short, it protects everyone and assures absolute full disclosure in all multiple offer situations. Ask your realtor for full details.
It is important to consider a host of factors when entering a multiple offer situation. No two situations are the same, and people are, after all, unpredictable. However, you can ensure that you make the most of a multiple offer situation, either as a buyer or as a seller, without sacrificing your integrity or getting taken to the cleaners.
Lateral thinking, intelligence, knowledge and experience will all benefit you in the process of staying a step ahead in a multiple offer situation. There is no set way. You must adjust your strategy to each situation.
In the end, the market never lies, and it will quickly tell you the value of your home and how well you have priced it. Gone are the days of properties sitting on the market being hopeful on price. Today, price your home right, out of the gate, and that could be what ultimately gets you more for your home than you may have thought.
If you have any questions, or are thinking of buying, selling or investing, contact me anytime. I'd love to help you reach your real estate goals.