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What Should We Offer?

24 August 2016
Wilson Sisters

Deciding how much to offer for a property can be a little bit stressful. Here in Toronto we have been experiencing a strong seller's market, with multiple offers being the norm rather than the exception. Competition between offers leaves much of the negotiation power in the seller's hands, so your offer should be very attractive to the seller, with dates and terms in their favour. Occasionally a buyer may find themselves with the only offer on a home and might succeed in a little more two-way negotiation. Here are some guidelines we suggest when making the decision about the price and terms of your offer.

Multiple Offers

  • How many offers are registered on the property? More offers usually equates to a higher sale price. 
  • What have recent sale prices of similar properties indicated? In a rising market like ours, one can't completely rely on comparable sale prices to determine an outcome, as factors like buyer fatigue can dramatically change sale price outcome (more on that later). However, they can give you a ballpark. Your Realtor should be able to help you with a comparitive market analysis for any property you're looking to offer on. 
  • What is the process the seller/listing agent will be undertaking for the offer presentation? Are they going to accept the most attractive offer immediately, or are they planning to allow everyone a chance to improve their offers? 
  • If there is no pre-listing home inspection available through the seller, have your Realtor ask the listing agent if any buyers have done an inspection before offering on the property. This can give you an idea if you'll be up against offers without conditions. 
  • Your offer should be firm, without conditions where possible (unless it's a condo you're offering on and the status certificate has not been made available before offer presentation). Remember, if the seller is faced with two offers, one with conditions and a higher price, one firm with a lower price, they will often allow the lower priced offer a chance to improve their price, and accept that one. If the offers are close enough together, they may accept the lower priced offer just to have a firm deal. Here in Toronto, it's usually the case that conditions (again usually excluding status on condos) leave you dead in the water and the only thing you've succeeded in doing is inflating the seller's sale price by increasing their number of offers - not helpful to you as a buyer who continues their search. Get your ducks in a row before offering by running the property past your mortgage representative and doing an inspection if there isn't one already available.
  • Terms - when you're in competition, it's advisable to give the seller their ideal closing date, exclusions, and any other terms they have asked for, and to keep your offer as simple as possible. 
  • How much do you love the property? This is also where buyer fatigue comes into play. Is this YOUR home? Do you want it? If you want it, then get it. Pay what you have to in order to secure this home for yourself, even if that comes at a premium. Sometimes, when you see a crazy sale price posted, one that doesn't make a lot of sense to you (they paid WHAT for THAT?!), this is the reason. Either the buyer had lost out on too many properties and was tired of the process, or they just loved it and had to have it. Either way, the next time a home in the area sells, this sale price is the comparable and the bar rises. Right now in Toronto it's really hard to "overpay" for a property. Do what you have to in order to get what you want. Don't overthink it. As long as you're prepared with a sizeable down payment in case the property doesn't appraise for the amount you've paid (which is rare right now) then do what you need to, so that at the end of the day, win or lose, you know you tried your best to make it happen.

Single Offer Negotiations

  • Comparable sale prices are important here. Is the property priced at market value, or were they priced low in order to try for multiples. Often, if it's the latter, the seller will still expect over the asking price even with one offer, so be prepared going in. Otherwise, they may terminate the listing and raise the price to market value, waiting for a reasonable offer. 
  • Figure which terms (closing, chattels, inclusions/exclusions) you are flexible on and which are a must. We like to keep some in our pocket for last minute negotiating. Price can often be negotiated a little by giving the seller what they want, and it's especially nice when it isn't really something you needed/wanted in the first place. The best negotiations leave everyone feeling satisfied. 
  • How long have they been listed? If they have been sitting for over a month at the same price, then they are overpriced. Have they just reduced their price in the last few days? Then they may not be in the mood for aggressive negotiating. Have your agent feel it out. 
  • Why are they selling? As listing agents, we never disclose this information, but sometimes, when the question is asked, you'll get an answer. If they are divorcing or have strong motivation to sell, it can change the negotiation in your favour. 
  • A buyer can usually get away with some conditions in a single offer negotation (five days for financing/inspection). However, be prepared that ours is a very strong seller's market and the listing agent may still be quite confident about selling, so negotiations may still be tougher than you'd like. 

Make sure you're represented by a Realtor who knows how to navigate this market. We are happy to answer any questions you may have. Good luck out there!