It is a situation you may have heard about. A buyer is in the midst of preparing an offer on a home when their realtor gets a phone call announcing that there are now other buyers in the mix.
It can be daunting to discover that there are other home buyers competing for the home you want.
In the current real estate environment, some suburbs surrounding the GTA are experiencing a seller’s market. Simply put, this means that the number of buyers exceeds the properties available.
Of course, it is possible to be in a seller’s market but not find yourself in a multiple offer scenario. It depends in part on what types of properties are in highest demand relative to the buyers who wish to purchase them.
For example, you may be seeking a condo apartment in a market experiencing highest demand for detached homes, as is currently the case in Oakville. A buyer in Oakville seeking a condominium apartment may be less likely to run into competition from buyers looking for detached houses.
Seller’s market or not, you may find yourself in competition for the home you want. Since it is hard to know when this might happen, it’s best to devise a strategy in advance.
Let's take a look at what information you will be given, what to consider in a pricing strategy, when and how your offer will be presented to the seller, and what the seller may do once they have received the offers.
What Information Will Be Provided?
According to the Real Estate Council of Ontario (RECO), the seller’s representative is required to disclose the number of competing offers to all buyers who have submitted a written offer. Importantly, however, the terms and conditions of each offer are confidential to the seller and their salesperson.
In essence, you will be advised how many buyers you are competing with, but you will have no information about the terms of those offers.
Should You Offer More Than Asking Price?
At the heart of your preparations will be resolving this dilemma.
Unfortunately, there is no one-size-fits-all answer. How much to offer and whether to go over listing price depends on a number of factors. For example, whether selling price is a fair representation of market value, and how prepared you are to offer more for the home than its asking price.
It also depends on whether offering more than the asking price of the home will benefit you financially in the long term. Your REALTOR® is an invaluable resource in helping you make this assessment.
Remember that while offering a higher price than the home is worth may give you better odds of securing the property, at some point the math of this approach no longer benefits you.
Also, be careful assuming that the final accepted price by a seller will exceed asking price. Of course it is possible that this may occur, however there are plenty of multiple offer situations in which the highest price accepted by the seller did not exceed the listing price.
Equally important, recognize that simply going over the asking price does not guarantee that you will secure the property.
For these reasons, consider carefully your maximum offer price. What can you afford, and what financial threshold will you refuse to go beyond? Making this decision before submitting the offer is key; once the emotions of a competition become involved, it’s more difficult to see clearly.
Bear in mind that there are other factors in play. Whether you include conditions in your offer, what those conditions require, and how long you need to satisfy them can influence a seller’s decision. Similarly, flexibility in the closing date can play a part.
To help you decide on a fair offering price and the other terms of the offer, your REALTOR® will offer you data on comparison homes in the area. They will help talk you through the pros and cons of going one direction or another in terms of price, conditions, closing date, and any other terms under consideration.
Take the time you need to think carefully through each area of the offer and talk it over with your REALTOR®. They have years of experience dealing with this scenario and can offer valuable guidance.
In competition, you may have only one opportunity to make your case.
When Will Your Offer Be Presented?
A real estate salesperson will inform their seller early in the process about the possibility of multiple offers. Part of this discussion involves how and when the seller wishes to receive the bids.
A seller may wish to see offers in the order received, for example. This would mean that the offer arriving at 4pm is viewed by the seller before the offer that arrived at 5pm. Or perhaps the seller wishes to see all of them at once, after all offers have been submitted.
The seller’s REALTOR® may provide a structure to the cooperating brokerages advising the buyer’s salespeople what the deadline is to receive offers, on offer day. In turn, your real estate salesperson will provide you with this information as early as possible.
What Happens After The Offers Are Submitted?
After reviewing the offers with their salesperson, a seller has a few options to choose from.
First, they can simply accept one of the offers and by implication reject all others.
Second, the seller may choose one buyer’s offer that they wish to counter and negotiate with that buyer. In this case, the other offers may be set aside by the seller pending the outcome of the negotiation.
Third, and the one you may have heard about, is where the seller sends everyone back to the table. In effect, the seller rejects all offers and requests that buyers come back with improved offers.
What Are The Risks for a Seller?
There are risks for a seller in either choosing to negotiate one offer or request that all buyers submit improved bids.
In the first case, a buyer not selected for negotiation may move on to the next house they are interested in and not wait around for the result.
In the case where buyers have been sent back to improve their offers, one or all may decide to walk away and refuse to participate. If all buyers choose not to participate, then the seller is left with no offers at all.
Both the buyer and seller’s REALTORS® will coach them through the process to ensure everyone understands the risks and potential consequences of each decision. Equally important is that buyers and sellers be as educated as possible in advance of a multiple offer scenario.
If you think you might encounter competition in buying your dream home, discuss the potential of this happening with your REALTOR® so you will be ready if it happens. Advance preparation will go a long way to eliminating the mystery and easing any apprehension around the process.
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