This Is Why Great Offers Are About More Than Purchase Price

By: Dana Gain

This Is Why Great Offers Are About More Than Purchase Price

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Many home buyers assume that winning a bidding war is all about the purchase price. After all, if you give a seller enough money then surely the house will be yours.
Not necessarily.
While purchase price is clearly one of the most important parts of an offer, it is not the only component that matters. If other key factors are misaligned, sellers have been known to leave the highest offer behind, favouring the second best bid instead.
So, how can you be sure you will get it right?
There are no guarantees when it comes to multiple offers. You can get everything right and still be faced with defeat.

Another buyer could offer a disproportionate amount of money just to ensure they win the home. There’s no predicting the outcome, not even for REALTORS®, because the bidding is completely blind. One buyer will have no idea what another may have offered.

That said, there are measures you can take that will improve your chances. Making your offer highly competitive involves firstly the right purchase price, and then the remaining 3 legs of the table: a strong deposit, the right closing date, and a minimum of obstacles (i.e. conditions).

The Right Deposit Amount
Along with a purchase price meant to move you to the top of the pile, a deposit is meant to reflect a buyer's intentions. A strong deposit speaks volumes to a seller. It shows that you are earnest, determined, and prepared to put your money where your mouth is. 
On the other hand, a weak deposit communicates the opposite message. 

Buyers with lower deposits are at a disadvantage, in competition. Even if their suggested purchase price is appealing, a lower deposit signifies less of a commitment. This is because if something were to go wrong in the deal, that buyer has less money to lose. 

If you are fully committed to that home and you want to back up your strong purchase price with a clear message of commitment, consider including a minimum 5% deposit as an approximate benchmark. If the likely sale price is near or over $1M, you may need to consider up to 7-10% for your offer to be persuasive.
If you are unsure about how much of a deposit to include in your specific circumstances, ask your REALTOR® for guidance. They will be familiar with the local market behaviour and the potential expectations of a seller.

Consider No Conditions
REALTORS® will tell you that conditions are important. Conditions protect a buyer or seller in a real estate transaction by stating that certain things must explicitly happen before the deal is considered binding. Once the specific events have occurred, a buyer or seller must sign a document waiving their right to that condition, which firms up the deal.

For example, a buyer may include a home inspection condition. This would allow time to have a home inspector examine the structure, mechanical, and plumbing systems to ensure the new homeowner is not signing up for high-cost repairs in the short term.
A buyer may also include a financing condition, which allows time for a lender to confirm mortgage funding. Another common condition provides a period of time to review and approve the contents of a status certificate, in the case of a condominium.

As important as conditions are - and they are very important - including these in an offer to purchase may rule you out of competition right from the beginning.

REALTORS® will generally recommend that you include conditions to protect yourself. You will need weigh the risks of including conditions against your chances of success in a bidding war.  In the end, it's a highly personal decision and everyone has a different tolerance for risk.
Speak with your REALTOR® about the pros and cons of including conditions before making your offer.

Closing Date Matters
Sellers may have already purchased another home and be tied to a specific closing date. Moving earlier than that date could represent inconvenience for a seller; and moving later may result in their incurring additional costs for bridge financing.

Ask your REALTOR® to determine the ideal closing date for the seller before you prepare your offer. Most sellers are quite happy to provide this information. Find out where they can be flexible, and where they cannot. This will allow you to choose a date that will work for you and simultaneously won’t inconvenience the seller. 
Showing this kind of courtesy in the offer process can go a long way with a home seller. And in a bidding war, buyers need all the leverage they can get.***

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