In life, I believe that we are never too old to learn nor do we ever “know it all.” Over the last two days I have been participating in an online real estate conference with REALTORS from a variety of backgrounds and markets including some in the U.S. In my last blog post titled “Real Estate Questions To Ask In Today’s Market” I commented saying that it appeared that right now, real estate Buyers are both frustrated and tired of the bidding wars which are driving home prices higher and frankly, who can blame them?
During one of the conference sessions, a number of REALTOR participants and especially those in the Greater Toronto Area (GTA) shared that same belief and message. Buyers across many markets are feeling that their dream of home ownership or their ability to move up to a larger home is slipping away for a variety of reasons not the least of which is the crazy bidding wars we have seen over the past year or more, a process commonly referred to in the real estate profession as “multiple offers.”
Multiple offers is as the name implies, several Buyers all competing for the same property at the same time. This is not a new phenomena. It’s been around for years albeit on a much smaller scale where you may have two, three or perhaps a handful of Buyers all submitting offers for a property at the same time. Recently however the concept of multiple offers has grown exponentially where in some cases several dozen Buyers have been vying for the same home simultaneously. Whether you are competing in multiple offers or are simply the sole Buyer trying to purchase a property, price is typically the overriding aspect as to whether or not you are successful. Obviously other factors come into play such as the closing date, number of conditions if any, what is included in the home etc. Personally I have seen however where the highest offer was not the one the Seller chose. In some cases the Seller(s) chose a specific Buyer(s) sometimes at a lower price because they were a “nice family” or there was some other compelling reason where the Seller wanted to see their home or cottage get purchased by someone that would be a worthy guardian of the property moving forward. Nonetheless, those cases are rare and the purchase price is more often than not the motivating factor that makes one offer stand out above all others when multiple offers are on the table.
Given the importance of price, for the Buyers(s) to have a strategy in place is very important when purchasing a property and this applies when there are no other competing offers but especially when there are. We all know that buying and selling real estate is an emotional process. First and foremost however it is a business transaction and that is how we as real estate professionals need to treat it throughout the entire process. Having been through a lot of negotiations in my life both before and after entering the real estate profession, I have come to learn that above all else it’s more about psychology than anything else and this is even more important perhaps on the Buyer’s side particularly in the competitive housing market we currently find ourselves in.
Given the importance of price, I have learned over my years of experience in real estate that from a Buyer’s perspective there are three level’s of price to consider when hoping to secure keys to your new home in buying process.
First, there is the price you would like to buy a property for. Example: A house is listed at $699,000 and you would like to buy it or are willing to pay $665,000 or perhaps $670,000 which is 95% to 96% of the asking price. This approach is fine and is generally successful in a balanced market but it very unlikely going to work in the Seller’s market we have today particularly in multiple offer scenarios.
Second, there is a price you are prepared to pay. When Buyers are facing competition in multiple offers or even when there are no other offers on the table, they will or may ask their REALTOR for some guidance regarding the price. If you watch any of the real estate shows on TV, more often than not, the Buyer’s agent asks the Buyer’s “what would you like to offer?” That’s a crazy question. We as real estate professional are or should be the experts. We will be negotiating the terms of the Agreement of Purchase and Sale on their behalf as as such we are the ones that are or should be acting as the Buyer’s “Trusted Adviser” when ti comes to pricing and other terms. Buying and selling real estate has become an extremely complicated process. Navigating Buyers and Sellers through the transaction is what we are trained for and it is what we are being paid to do. Helping Buyer’s determine what they are prepared to pay falls largely on the REALTOR’s shoulders showing them sale prices for comparable homes in the area Whether the Buyer(s) follows our expertise and advise up to them.
Thirdly, when in multiple offers, the REALTOR’s expertise is even more important. In many multiple offer situations the Buyer(s) will only have “one kick at the can.” As such, you have to submit an offer putting your best foot forward. This is where things can fall apart and I have seen it happen. As per the above, a Buyer(s) may have their own opinion on price or better yet, they have gotten some guidance from the REALTOR acting on their behalf. Again, as I mentioned above in the first example, this is usually okay in a balanced market however it is often ineffective when faced with competitive Buyers in multiple offers. A situation like this brings forth what I have dubbed based on my experience as being the “third” price. What’s the “third” price? To arrive at the “third” pricing option to submit when facing multiple offers I ask my Buyer clients a simple question. That question is: “what is the price that if someone else beats your offer and all other competing offers which subsequently makes them successful in buying the subject property that you would be disappointed to learn or would otherwise make you angry?”
Here’s an example using the house above listed at $699,000. The Buyers like the house and wants to submit an offer. Before doing so they learn there are six other offers. Their REALTOR informs them that in order to have any chance of being successful in purchasing the home, they must put their best foot forward and asks “what is the most they are willing to pay and they answer $725,000.” Their REALTOR prepares an unconditional offer for $725,000. The BUyers feel confident as their offer is $26,000 over the asking price and they figure no one can touch that. Their offer is presented to the Sellers and a couple of hours later the Buyers are advised by their REALTOR that the house SOLD firm for $739,000. Upon hearing this news the Buyer’s response is “we would have paid $739,000 for that house.”
Given there were multiple offers, the unsuccessful Buyers were asked as stated above, “what is the most you are willing to pay.” What their REALTOR should have asked was, “what is the most they were willing to pay that if they were out bid by a higher price, they would not feel disappointed or more importantly angry about wishing they had offered higher?”
Over the years I have often been involved representing Buyers in multiple offers and in most cases my clients were successful because I asked that one slightly differently worded question which established an offer price geared at making them not only successful but had they lost, they would not have felt disappointed and or been angry as then knew they “put their best foot forward” and someone else paid a price that was higher than they were prepared to pay or more than they could ultimately afford.
In the current market we are in this situation is no doubt happening repeatedly which is why we are hearing stories about homes being sold for hundreds of thousands of dollars over their respective asking prices. As I stated above, as a real estate professional my role is to act as a “Trusted adviser.” That entails a lot of things including answering as well as asking questions that will best serve the needs and protect my value clients best interests in the real estate transaction.
Hopefully you will find this post helpful as we navigate our way through the current Seller’s market. As always I welcome you comments and feel free to Contact Me with any questions you may have, I am always here to help with Trusted Advice, Proven Experience.