In prior posts I have discussed the matter of “multiple offers” as that has been a common denominator in countless real estate transactions over the past year or more. We have all heard or read in the media about homes especially modest ones in the Greater Toronto Area selling for hundreds of thousands over their respective asking prices. In real estate as with anything else, a product is ultimately worth what a willing Buyer is prepared to pay. Selling and buying real estate still involves negotiation but in a Seller’s market, the scale to which negotiations can happen is clearly weighted in the favour of Sellers.
As REALTORS®, one of the most important roles we can play in serving our Seller and Buyer clients in the real estate transaction is that of a consultant and negotiator. When representing a Seller(s) that role begins when we initially list their property for sale. If the Seller(s) is truly motivated to sell, pricing the home or other property is extremely important in order to attract potential Buyers. As professionals we need to do our homework which includes looking at similar homes that have recently sold as well as those they may be currently listed which the Seller’s home will be competing with for Buyers. The other factor to consider is similar properties that were listed for sale and failed to sell and in many of those cases the property was probably over priced hence it failed to sell. Over pricing a property in today’s market is happening less thanks to the insatiable demand for housing we currently have as is illustrated by the number of multiple offers and inflated selling prices we are seeing. Some days it seems like no price is to high and it brings to mind the old saying “a fool and their money are soon parted.” Nonetheless, we as real estate professionals still have a duty to both Sellers and Buyers to do our due diligence and advise them about pricing as well as other matters that are of material importance to their selling and or buying decision making.
Whether it’s a Seller’s market which we have today or a balanced market which treats Seller and Buyers equally, Sellers have several ways in which they can respond to offers whether it’s one or when presented with several. Obviously one of the best and easiest options a Seller has is to simply accept an offer and with the degree of multiple offers that we are now seeing that more than often is the case. If a Buyer is offering you one or two hundred thousand dollars over your asking price the decision to accept is all but made for you. Over the years I have been involved in several multiple offer situations and regardless of the number of offers, there is usually one offer that stands our above all others.
A couple of years ago I was involved on the listing side with a waterfront property in the Blue Mountains. The property was accurately priced at $1.25 million and on the day in which offers were to be presented it drew five potential Buyers. The first offer came in at the full asking price. The second offer was $1.405 million, the third $1.465 million. About this time the elderly Seller was breathing heavily and somewhat in shock. The third REALTOR® came in and presented their Buyer’s offer of $1.560 million. At this point I was beginning to worry about the Seller’s heart rate, while I remained cool, calm and with a straight face which I have found is key in any negotiation. Buyer number four at $1.560 million no doubt thought that at $310,000 over the asking price they probably had the strongest offer and it was a slam dunk. Not so fast I thought. Finally the last Buyer’s offer was presented. As will all other offers there were no conditions, all Buyers were essentially buying the property “as-is.” I had drafted a Schedule that had to accompany all offers effectively saying the Seller had no idea about whether the septic system or anything else on the property functioned or was in good working order, essentially there were no warranties or representations being made by the Seller and I had to protect her in that regard. The final offer presented was $1.8 million, $240,000 more than the closest offer. When Buyer number five’s REALTOR® left the room I simply turned to the Seller client and said “I guess we know which offer you should accept.”
The purpose of sharing this story is to illustrate what other options the Seller could have taken in this situation and the same applies in today’s hyper active market whether there is one offer or many. As I stated earlier, whether representing a Seller(s) or a Buyer(s), as a real estate professional our role is that of a negotiator, to provide counsel and that includes advising the parties of their options in order to execute a strategy and above all protect their interests.
First the Seller in my story could do as they did, they simply accepted the best offer and why wouldn’t they? It was $550,000 over the asking price with no conditions. Second, the Seller encouraged by the level of interest with potential Buyers could have rejected all five offers and asked them to re-submit new offers hoping to further drive up the price. Greedy perhaps, risky yes. That is something I always refrain from suggesting as it does involve risk. What if a couple of the Buyers or worse all five in this case got upset by the rejection of their initial offers and simply walked away? You as the Seller have effectively lost some or maybe all offers and at the very least as the Seller you have weakened or lost your negotiating leverage. To clarify things, by law the listing REALTOR® must advise all parties in writing as to how many competing offer there are, the details of those offers are of course known onlky by the listing REALTOR® and the Seller(s).
The other option the Seller could have taken was to hold onto the highest offer at $1.8 million and with their instruction I would advise the other four Buyers that we have a very good offer but before we deal with it would they like to submit a revised offer? Some might re-submit while others may not but at least you have a “bird in the hand” so there would be no risk to the Seller. If the other four Buyers chose to walk away the Seller could simply accept the offer which they did or they could have signed that offer back to the Buyer at a higher price or with other changes such as the closing date etc. Signing the offer back also poses as risk depending on the nature of the changes and this needs to be clearly pointed out to the Seller(s).
In any situation where there are multiple offers, the one option a Seller does not have is to sign back more than one offer. It’s rare but in some instances over the past 20 years in this business I have had Seller(s) ask me why they I can’t do that? The answer may not be obvious to them but it’s pretty straight forward. In signing back let’s say two offers what happens if both sign backs are accepted by the Buyers? The answer is you have sold the property twice to two different Buyers and in doing so things will get very messy with the potential for costly litigation.
Whether you are a Seller or a Buyer, details of every real estate transaction need to be clearly explained and far too often they are not. As REALTORS® in Ontario we are licensed by law through the Provincial Government to trade in real estate. As I have said and many of you already know that current market conditions clearly favour Sellers. Buyers are effectively at a disadvantage but that doesn’t seem to be stopping them from entering bidding wars and paying prices that surprise us all. Only time will tell how long this trend will last and it appears to be wearing thin. Consumers who have lost out three and four times to competing offers are becoming very frustrated perhaps indicating that we are at the “tipping point” of this real estate frenzy.
During these crazy times all parties to a real estate transaction need to be fully aware of their options and REALTORS® must provide the utmost Duty of Care to protect the interests of their respective clients. With market competition as strong as it is right now and with some crazy prices being paid, now is not the time for anyone to be careless or misinformed when selling or buying what for many is the most significant financial investment they will ever own.
Whether it’s the ongoing fight against COVID 19 or the real estate market, it would appear that 2021 is going to be another interesting year and I will continue to post here on a regular basis to keep you informed of the things you need to know.
Stay safe and stay healthy…..