In high demand and fast sellers markets like the Toronto real estate market multiple offers or bidding wars happen very often. The current inventory level in Toronto’s housing market is 0.53 MoI, which puts Toronto in a tight sellers market category.
Winning a multiple offer or bidding war on a house in a sellers market needs you to have a strategy in place. Especially if you are a first time home buyer who has not experienced this before, you might soon get frustrated.
If you are a Toronto real estate agent who is helping home buyers or first time home buyers, you also can use the below strategies to help your client to win their dream home. These are the strategies that best real estate agents in Toronto use to help their buyers win the homes in the seller’s markets.
A. What type of offers to draft to win multiple offers
When it comes to multiple offers or winning a bidding war on a house or a condo, the most important strategy is to choose the right kind of offer for you or your client. Let’s review types of offers and see what fits you better:
Conditional and Firm offers:
Firm offers ( no conditions in the offer ) are offers that buyers take all the risk and buys the property “as is” and will have to close the transaction on the closing date no matter what. If a buyer can not close a transaction, he may lose the deposit or other financial penalties if the seller can not successfully sell the property with the same price to someone else. To be aware of all the risks, you can talk to your solicitor about it. So when you sign a firm offer you need to make sure you can close the transaction.
Conditional offers are offers that buyers put a condition like financing condition or inspection condition etc in the offer.
What sellers look for in an offer in a multiple offer situation?
When buyers are competing on a property, Price is not the only factor. I have had cases in multiple offers where buyers offered higher prices but sellers went with an offer that was clean but with a lower price.
The reason is that, if sellers accept a conditional offer but the buyer uses that condition to get out and the seller has to market the house again, they will lose the momentum. They may not be able to gather many buyers to compete in their bidding war, on another offer day. Unless they get 1 or 2 offers or 0 offers, they are forced to accept a conditional offer ( it happens in buyers markets or balanced markets ).
Toronto’s current real estate market is a seller’s market, so many properties get multiple offers. In this case a firm with the higher price and good closing date has the highest chance of winning the property.
Are buyers taking the risk of signing firm offers?
In multiple offers and the current market conditions in Toronto, buyers have to do their Due Diligence before submitting the offers.
For example, if they need a home to be inspected, they hire a home inspector to walk through the house with you during the showing and tell you his opinion if he sees any issues, or you at your own discretion and risk, like many buyers out there, take out the inspection condition. So basically in order to go firm in offers, the buyers either : 1. Do their due diligence before submitting the offers 2. Take the risk and remove any conditions from the offer based on their own discretion.
The same applies to mortgage approvals, if you are not sure about your mortgage or financing, you need to send a copy of the listing to your mortgage broker / bank and get a green light from them. For example, tell them that I wanna put a firm offer of $1.35Millions on 123 Main St, Any city, ON, am I good to go or not. So I suggest doing all the due diligence steps before putting in any offers.
Same applies to reviewing the status certificate, in condos the status certificate is the document that reflects most things about the condo, so it has to be reviewed by your lawyer. Before submitting an offer on a condo, if the status cert is available, you’d have to send it for a review so you can remove that condition from the offer too.
Once you sign on any offer, if both parties accept it, it’s binding and must go through as it is agreed!
Typical Conditions for Freehold homes:
Common conditions in freehold houses are mortgage and inspection by an inspector. Other conditions can be added in a buyers market or at the buyer’s discretion. Based on your area conditions may be different. For example if you’re in a rural area, you want to inspect the water quality and septic etc.
Conditions for Condo apartments:
Common conditions for condo apartments are mortgage and status certificate review by a lawyer. Other conditions can be added in a buyers market or at the buyer’s discretion.
What Price to put on the offer in multiple offers?
You don’t want the price to be too high to increase the risk of under-appraisal. On the other hand you don’t want the price to be too low to lose the house. The best strategy is to check the comps with your real estate agent. Don’t rely on sites like houssigma for valuation, they are not accurate and they are computer generated averages. Ask your agent to compare apples with apples. A knowledgeable Toronto real estate agent can help you to determine the right price and value. For more information you can check the youtube video on how to win multiple offers.
Deposit has to be ready:
In multiple offers you need to have your deposit ready in hand with the offer. If you are low balling or just trying, literally you don’t need to have the deposit because the chances that you get the house in a multiple offer with a lowball offer is super low!
But if you are offering to win the home, I recommend you have your deposit bank draft ready with the offer. That will help you a lot when you’re in close competition with another buyer.
Personal Letter / Video + A Letter from your mortgage broker:
A personalized letter from your family to the seller’s family might help you when the competition is close. I have had my buyers won a multiple offer where the seller had received an offer 10K higher, but chose my buyer because of personal connection and the stage in life.
Also adding a letter or video from your mortgage broker can help to give confidence to the seller that your financials are good.
If you’re a buyer or a real estate agent in Toronto or in any sellers market, you need to be doing all the necessary steps before putting in an offer. The above steps help you to set your strategy to win in any multiple offer or bidding war situation. I wish you the best of luck!