Multiple Offers – Dare I Take Part?

There has been considerable press lately about the real estate market being over heated, feeding fears of a “market bubble” situation. Those that support these views often cite the prevalence of multiple offer situations – driving sale prices $50,000 and $100,000 over asking prices in hot market centres – as a key contributor. What exactly is a multiple offer?

A multiple offer situation presents itself when a property is so desirable that more than one offer for the property comes in at the same time. It may be only two competing offers, however, it can be more as I have personally experienced the misfortune of being one of 15 competing offers on the same property in a certain trendy west Toronto neighbourhood. As you might imagine, the more offers on the table, the stiffer, more emotional and less logical the competition often becomes. How does a property become so desirable that multiple offers occur?

Multiple offer situations can happen on their own, as a result of a premium property being offered when supply is low, but more often than not they are created. They can be created a couple of different ways:

• A significant price drop by a Seller may entice more than one set of buyers who were “on the fence” about the property at the previous
• Holding offers until a specific date (often 7 days after listing it) in order to generate the most possible interest
• Pricing the property well under market value to create a buzz with today’s well informed buyers the moment it hits the market (often
combined with holding offers until a certain pre-determined date)

How does a multiple offer situation proceed? When a home has more than one offer registered on it, the offers will be presented in the order in which the offers were registered – a phone call to the listing brokerage to let them know the papers are signed. The sellers will review all of the offers at a specified time and then decide on their course of action. The sellers may accept the best offer, negotiate with the best offer and reject all others, negotiate with one buyer and inform the other buyers their offers are being set aside while the negotiation takes place or reject all offers completely. Often, the listing agent will inform the competing buyer’s agents before the presentation that it will be one round of offers and the best offer will be dealt with.

What about conditions? The winning bid may not always be the highest price. In some instances it may be a bit less money, however, it could have no conditions or be “clean”. An offer containing a home inspection or financing clause provides an “out” for purchasers, which in the eyes of the seller weakens their bid. That being said these conditions may be essential to your comfort level putting a bid in on the property and a home purchased without an inspection can reveal a range of post sale surprises. Should the home be bid up considerably over fair market value, it may not appraise for the amount you are looking to finance. In this instance the inclusion of a financing clause might have cost you the house or, if you are successful with your bid, saved you financial distress should it not appraise.

What is the best strategy in preparing for a multiple offer? Unfortunately, there is no “best strategy” that blankets every situation. Each home and multiple offer situation is unique. I often meet with my clients and create an offer plan. We determine what we feel the value of the house is and a logical limit on what they are willing to pay for this specific home. It is also beneficial to determine a price at which the clients feel someone else can have the home. This way expectations and intentions are clear and some of the emotional lack of logic can be removed from the process. In the instance that your agent also has the listing on the property, be sure to review the Buyer Representation Agreement section on Multiple Representation.

Luckily, multiple offers are less prevalent in Burlington and Oakville than some other centres such as Toronto. However, I have experienced them in the Halton Region as well, albeit less often. My best advice is to be realistic about what you feel the home is worth. Keep in mind that other inventory will eventually become available. Create an offer plan and stick to it. Good luck!