It is a beautiful day! I know what you are thinking. That is subjective depending on the person and time of the year in Canada. However, today is a beautiful day for you, because you found the home of your dreams. All the effort of working hard to save money, scouring the market, looking at 30 homes for something that hits all your criteria and one day, bam, there it is! Did you know that the average person knows if they want to buy a home withing 45 seconds, of walking in? There is something magical to it feeling right, and most people know if they feels good within the first minute .
Now that you have found that perfect home, you realize that others may also think it might be a perfect home and thus you might find yourself bidding war for the same home, a multiple offer situation. Having to compete for the same home really is not fun, not for the buyers at least. At the end of the day, whether there are 2 offers on a home or 10, there can only be one victor. Only one family will come out happy, the rest not so much. Bidding wars have been common over the last many years in the Greator Toronto Area. Sometimes all it takes is for two families to like the same home at the same time and it becomes a battle. The great news is, I am writing this article with tips on how to come out on top of these situations, how to win, or how to move on when you don’t, while feeling good about it! Here are my 7 tips whenever finding yourself in a multiple offer situation.
1. Do not start without financing.
2. Know the value of the home. Do a CMA!
3. Be Prepared to waive all conditions.
4. Always present the offer, in person.
5. The buyers must be showcased.
6. The other agent is your best friend.
7. Do not get emotionally attached to the home.
1. Do not start without financing
It happens to everyone at some point in their life, they see something, they fall in love and want it. The worst situation we see is when a clients sees a home, they want it, but can not have it because they have no financing prepared. Assuming the client can actually afford the home, not like some 10 million dollar mansion, then they have to secure financing first, even before looking at homes. If you do not get you pre-approval confirmed, you will lose that great home. Do not let that happen to you. So here are some tips. Go to the bank or a mortgage broker and make sure you know your financing limit and financial comfort. Mortgage broker or Bank?
Bank vs Mortgage broker. The general consensus is, get you mortgage with one of the credible banks if you can. Later it will allow you certain perks: port the mortgage onto a new home, open a secured line of credit etc… Plus there is always someone to see or call at the branch. When a mortgage broker is a good idea, is when your situation and application needs some massaging. This meanings such things as
Mediocre Credit, Self employment or Corporation, You already have other properties are all good examples. Basically if you are a great applicant, we call these AAA, go with the bank. If you are not sure or know you might not be a perfect candidate, talk to a mortgage broker first. They also have connections to the banks but can be more flexible and find the correct lender for you out there. A huge benefit with an experienced mortgage broker is they can review a clients application and decide how they want to package and present it, depending on the lender. This is a lot more flexible then with the banks.
2. Know the Value of the home, do a CMA!
Anyone time you, as the buyer are interested in a home, the next step is to find out what is the actually market value of that home is. This is where you ask your realtors to do a CMA (Comparative Market analysis). This should be reasonable combination of documents which would include such information as;
– History of the home, previous owners, previous purchase amounts and sold MLS pages, exact age and square footage of the home, all history of sales on the same street for the for the last 2 years, all comparable sales of similar homes in the area for the last 6 months and all current homes for sale in the same area.
The buyer should learn 2 major things from the CMA. The first is that they know everything about the house from a historical point of view, comfortably. Secondly and most importantly, what the actual value of that home is today. That is really important because when you are in a multiple offer situation, it is good to know if the home is specifically marketed at a lower price and when it comes time to make an offer, the buyers then know what a “fair” price would be. This process can educate the buyers and keep them confident with their offer, avoid overpaying.
Lets do a quick example. 123 Main st, is listed for sale for $399,000 and looks like a great buy. The CMA reveals a true value of $450,000. Mr and Mrs Smith put in an offer and are competing against 9 other offers, 10 in total. They can now comfortable offer upto $450,000 knowing all the information. If they win the bidding war, great, they paid fair value, so its a good deal. If another party goes over, they should be ok with it as that other party decided to overpay.
Pro Tip: When picking a max price in a bidding war, pick a price that if someone else went $1000 over and you lost, you would be fine with it.
3. Be prepared to waive all the conditions
When in a multiple offer situation, it is common for the winner, to win with a clean, no conditions offer. Price the single more important aspect of the offer, however other aspects can mean winning or losing, easily. Conditions protect the buyer, financing and home inspection typically last up to 5 business days to help the buyers secure a mortgage from the bank and inspect the home. Once those conditions are removed, there are no more conditions and the offer becomes final.
A) The idea that the buyers are very stable financially. When a buyer removes his financial condition from their offer, this indicates they are very secure financially and a great candidate to win their home in the multiple offer. For the buyer this means they know they are great financially with confidence. How can we achieve this so that the buyer to feel secure with this decision? Well first and foremost, we already talked about getting a pre-approval from a financial institution before you even start looking, financing is in place. What we suggest is, once the buyer sees the home, decides they want to buy it. If you have a day or more before the “offer date”, send the MLS page of that listing to the buyers lender so they can review it. By doing this the lender, their branch, the underwriter can convene about that specific house and give more clarity if that house can be financed for that specific buyer. Its like a head start to the financing and can definitely give the buyer more confidence in their offer, if dropping financing is a must. Basically if there are 3 or more offers, you as the buyer can easily lose the home if you can not be in a position to drop the financing. Something that could be controlled easily, if planned for properly.
One more thing to consider with financing. Often when a mortgage request on a specific home is approved and finalized, it will be under the condition that it passes an appraisal. The appraisal is a document done by a professional by looking at the home and compare it to other homes sold in the area for the purpose of calculating monetary value of that home. The point is the value is equal to or above the value on the offer of purchase and sale, then the mortgage is approved. Notice anything? We have already done that ourselves by doing the CMA in step 2! The extension is like the CMA we already did, so you know the monetary value of the home and the bank does it their way. You already know it will pass the appraisal and you did not overpay. It is a good deal, rest easy.
2. You have to drop you Home inspection condition, someone is buying this home today. The day the offers are presented is a whirlwind. It is emotional, often intense, everyone is guessing what will happen, what the price will be to win and so on. Again, if there are 3 or more offers someone or many buyers will drop their home inspection condition as well as financing to buy the home today, right now! These are the two general conditions in a offer, and assuming a buyer removes them both, they will be under contract to buy that home. But hold on, removing a home inspection!?? Is that a good idea? Here are some things to think about.
A) If if the house is relatively new, its not that big of a deal to remove the home inspection. We say 10 years old or less. A common item that comes up with a 10-15 year old home is the roof needs to be replaced by year 15. Basic builder shingles last normally 12 years on average, and this is common knowledge. As for the rest of the house, it may have some small items for repair or adjustment, but its normal stuff. The point of a home inspection is for peace of mind or to negotiate some repairs. In multiple offers the sellers will not negotiate anything based on a home inspection because they had a line up of people that wanted it as is! In a young home the home inspection does not have to be essential.
B) If you want peace of mind that what you are buying does not have any major issues, especially if it is really old, then do the home inspection before the offer date. This may be the only way to get a home inspection done on the home. You can call the selling agent, tell them you want to do a home inspection, find an inspector and do it during regular showing hours. If the buyer is satisfied with what they found out and also they have their financing in place, they are now in the best possible position to purchase and win that home!
Pro Tip: If the buyers really want the home, prepare the deposit check at the offer presentation. Worst case you lose and put it back into the back. Best case, it wins you the house!
4. Always present the offer. There are two general ways to present an offer to the buyer, by email or in person. When emailing an offer, the buyers have signed a full offer of Agreement of Purchase and sale (APS) and the offer is emailed to the sellers agent, who then either emails it to the sellers or prints it and shows it to them in person. It is a slower process and less intimate, however very much a part of a lot of transactions.
Often when the day arrives that you get a chance to place an offer on the home of your dreams, ask the seller agent if you can present the offer in person. This means that you, your agent get to drive together to the house of interest or office of the sellers agent, and present the offer to them in person. The agents that present to offer in person is always given the upper hand and generally liked more by the sellers and their agent.
For example: Lets say there are 5 offers for 123 MAin st. 4 offers are emailed to the cooperating sellers brokerage. Your agent picks you up, and takes you to the house because presenting was an option. If you present the offer in person, you get to see the other agents, see the their clients in person, introduce yourself, say something nice to them, be memorable. The first thing this will do is give you credibility. Often when I present the offer, the sellers agent may give some hints on what is missing in our offer to be winning one. Since we went out of our way to be there, they will often rout for us and want us to eventually win! Sometimes its that easy. Sometimes the sellers agent says they will only accept offers by email, then there is nothing you can do. However if you can go present the offer, then do!
Pro Tip: Even if you are the ONLY offer, you should still present it.
5. The buyers must be showcased. This goes hand and hand with presenting an offer, but not always the same way. When your agent presents the offer on your behalf, he should be talking about all the nicest things about you! After all they are making a “presentation”. The nicer the presentation, the more the buyers will like you, and will secretly cheers for you winning, any edge is huge! What should we be talking about to the sellers? Its the agent job to be really polite and friendly, talking about why his clients love the house, talk about anything that stood out, talking about the sellers having a lovely home and how awesome a job their realtor did to get all these offers (You need that realtors help too!). You want to talk about anything that makes sense, portraying these potential buyers as the best possible people to take over this lovely home. If its a great family neighborhood, talk about their kids. If the house has nice landscaping, talk about how they love to garden. I think you get the idea.
What if the offers are to be emailed? Put it in words, everything you wanted to say in person and write a nice story about your clients, giving your offers some uniqueness and personality. Talk about why they love the house and why they would be the best fit! Sometimes the buyers write a letter to the seller. If they are willing to do that, it would do wonders. If not then write your own story in the email with the offer. Tell them why your buyers should win this home! This is not going to work all the time, but it will go a long way to give your clients a human element, an underrated part of presenting during a multiple offer.
6. Get to know the cooperating agent. Be very professional and polite to them. Talk to them often when relevant. In a multiple offer situation, the most important person is often the sellers agent. If the buyers agent knows that person well, or they become liked by that person, that will give them an advantage. The first thing the buyer’s agent should do is call around and ask colleagues if anyone has experience with this particular agent running the show. If someone knows them well then ask for a introduction. Its great to start early, call the sellers agent and get to know them a bit. Also talk to them professionally and be very polite, compliment them if its a good time to do so. Once the day of the offers, talk to them to make sure you understand what the process will be. Even if you have to call them a few times, do it. Tell them about your client, how they are fully approved financially, if they plan to put a 20% down payment (or more). Talk about how you spent money for the home inspection before hand and what you found that you are still happy with. Most importantly, show your passion for your clients, talk about how they love the house, are really nervous to get it. We often find that when the two cooperating agents are able to develop a professional bond of sorts, the buyers are more likely to get an edge, they may even be told tidbits of information how their offer can be the winning one. Once you get there, there is nothing more to do. As long as your buyers are happy, use any of the tips you got, put them on paper and get them that house!
7. Do not get emotionally attached to the home. Does anyone like to get hurt? The answer is no. If you put your heart out there in real estate you could get hurt, after all you may love the home the most, but may not end up with the best offer and will lose. When making an offer into a bidding war, put yourself in the best position to win, but do not get emotionally attached to the home. It will makes things a lot easier if you do not win, after all there can only be one winner each time. The day will come, where you have done all your research, are as ready as possible, like or love the home and you win it! At that point celebrate like there is no tomorrow. By keeping a more professional and low profile in your home search during a sellers market, it will make your progress easier. There is no guarantee, almost never, that the first home you want to make an offer you will buy and therefore win. It would not be uncommon to take 3-5 attempts before winning a home in a competitive environment. Trust your realtor, don not overpay, and live to fight another day.on
Follow these 7 steps and they will guide you to the best possible position to win a home in a competitive environment, to make sure you are not overpaying, ready financially, know when to make a move at the right time. Follow these 7 steps and your search for the a home will be more like riding a horse like a cowboy, it will be fun riding with your rope out, because you know you are going to win.