The Ottawa real estate market has exploded. We are down in inventory something like 40% from five years ago and around 20-27% year to year depending on the area. As a result, anything that is decent is getting snapped up in multiple offers. Even not so nice properties are finally being sold after languishing on the market for months.
That makes it a very frustrating process for buyers. They can find themselves in bidding wars over and over without any guarantee of success. It’s frustrating for realtors too: there is a lot of work involved in showing properties and preparing offers, and we work on commission, so we only get paid if our buyers can actually buy something. In a market like this, it’s great to be a seller, but it’s emotionally draining to be a buyer.
So here are my tips for success in a challenging market.
Work with a realtor. If you are relying on Realtor.ca, by the time you see a listing you are interested in, it may be too late. As realtors, we get those listings before they hit Realtor.ca. That allows us to arrange to get in to see them right away.
Get your own realtor. A multiple offer situation is not the time to be working with the seller’s agent: it is fraught with conflicts of interest. Believe me on this one: you need independent advice. An agent who double-ends is not required to do any research for you on comparables and they will not be able to advise you on price, which is precisely the information you need.
Work with a mortgage broker. You need to be pre-qualified, not just pre-approved, for financing. You need to know going into this process what you can afford. (Besides, a good listing agent is going to ask your agent if you are pre-qualified: the last thing the seller wants to do is accept an offer that could fall apart over financing.) Pre-qualification means gathering together a bunch of paperwork like Notices of Assessment going back two years for the broker, and getting together bank statements and so on, but it’s important to do that upfront.
Get in to see the property fast. This is not a market where you can afford to wait even a day or two to see a listed property. If the seller is holding off on offers until a specified date, you may have a little time, but if they haven’t specified a date for reception of offers, you need to get in ASAP. If it’s a decent property that is reasonably priced, it will probably be conditionally sold within a day. I’ve seen listings that popped up at night and by the next morning the agent had three offers.
Make decisions quickly. Time is of the essence. You do not have time to dither, or to come back with your family and friends, or to have third showings. This isn’t that kind of market. If you see a property you like, you are going to have to probably make a decision within hours.
Be sure your agent asks to be kept in the loop. A property that gets 10 or 15 showings within the first day is going to get multiple offers for sure. Your realtor can ask the listing agent to keep them in the loop re. activity and offers so that they know how many offers are coming in.
Don’t wait. Sometimes getting your offer in quickly will scare off some of the other would-be bidders. The fewer offers there are in a bidding war, generally, the less you will have to pay.
Make sure your realtor has the information they need before they need it. One of my clients and I went to see a property yesterday. The agent told me he had an offer in hand and was expecting several more by the time we got there at 6 PM. Presentation of offers was scheduled for 9:00 PM. Because of the tight timelines, I brought an offer with me with some blanks to fill in. My client decided she wanted to put in an offer and we completed it on the spot: what was important is that we could act quickly. I had all the information I needed for the Buyer’s Representation Agreement. I had also talked to the listing agent and knew what closing date the seller wanted.
I had pre-populated the form with the information from the listing and standard clauses that we could either keep or strike out. All we had to figure out on the spot was price. (And yes, she won the bidding war.)
Have as few conditions as possible. An unconditional offer, even at a lower price than a conditional offer, will usually beat the higher offer unless the disparity in the prices is so great as to justify the seller taking a risk on the deal falling through. We are seeing more and more unconditional offers. I have myself bought properties without home inspections or financing because I knew what I was getting into, but I work in this business, and have a high comfort level with risk.
Home inspections. I don’t encourage waiving home inspections, because it’s very risky. There are a few options: you can do a home inspection (if time permits) before the time for presentation; include a home inspection in the offer and hope for the best; delete the clause, but at considerable risk, or tighten up the timelines and hope the seller goes along with the time required to do one.
Some buyers get the inspections done before the time due for presentation of offers. That’s great, but they may not be the successful buyer, in which case they will be out of pocket probably $ 450-600, and more if they had to have a wood burning fireplace inspected as well (this is called a WETT inspection and you will need it for insurance).
I always include a home inspection clause in an offer, even if my clients decide to strike it out, so we can discuss it and they understand it’s not something to waive lightly. Most prudent buyers decide to go with the home inspection, but not all. I had one client decide, despite my advice to the contrary, that she was ready to take the risk.
We’d been through the home pretty carefully and there was nothing obvious that was problematic. She knew she may have to replace the furnace and A/C sooner than later and that we couldn’t ascertain the age of the windows. I made it clear that I am not a home inspector and that she should have an inspection to determine electrical, check attic, etc. but the home is new enough that she felt she’d be okay. However, she’s decided she will do one before closing so she knows what she may have to do, but she wanted to go into multiple offers with a clean offer.
In that situation, you want to make sure you have as much disclosure as possible. Be sure you’ve taken a good look at the property, that your agent has requested disclosure of any prior issues, and you can afford to fix whatever may turn up later. A seller does have an obligation to disclose latent (non-obvious) physical defects, but you don’t want to rely on that disclosure alone: if it’s not provided, and a problem arises, no one wants to have to sue.
Financing conditions. A cash buyer will have an advantage over a buyer who needs financing in this kind of market. So, if you have to put a financing condition, you will want to keep the time lines very short when it comes to approvals. If two offers are similar otherwise and you are asking for eight to ten days for financing approval because you haven’t bothered to apply yet, and the other buyer is asking for five days, guess which offer the seller is going to accept?
Don’t let emotion drive you too far. Consider the home you are buying and its re-sale potential down the road. Life changes. Anything can happen. Even in a multiple bidding war, you don’t want to go crazy. There are some buyers making offers that are so far over the market value of the properties they are buying that if they have to sell in a hurry, they will absolutely lose money. Let your realtor advise you as to what the range of fairness is and what they think it will take to secure the deal. If you are overpaying, which is likely, you need to have a sense of by how much.
My rule of thumb is that as soon as there are two offers, your offers needs to be at least at or over asking price. (This applies unless it’s a Power of Sale or needs a ton of work and sometimes even then.) Your offer is going to depend on the value of the property and the comparables, bearing in mind that what has sold in the last 60 days is more important than what sold last year: prices are moving up quickly.
There are no deals. Know ahead of time that you are going to overpay. However, as long as you are not overpaying by too much, you’ll be okay. Until the market cools down, you’re going to run into this situation over and over, and there are no deals. On the other hand, if prices keep on going up, as long as you haven’t overpaid by too much, it won’t take long before your purchase price corresponds with fair market value.
An example: I looked at an end unit in Riverside South a couple of months ago. It was lovely, but nothing there had sold for more than $ 375K. At $ 400K, I thought it was a little over-priced. It sold for full price within a week. And now that very same unit would easily go for $ 420K or more. The person who overpaid two months ago now has a property worth more than they paid for it. That’s how quickly things have changed.
Because of this, I don’t think paying a few percentage points over asking is a problem, and agents who price for multiple offers usually price at least 5% below what they think market value is anyway. Besides, if there are multiple offers in play, the market is saying the list price was too low to begin with: the more showings, activity, and offers, the lower the list price is relative to what the market thinks is good value in this market.
But when you start offering 10 per cent or 20 per cent over asking, it’s going to take quite a while for market value to catch up. I’m hearing stories in my office of buyers paying $50-100K over asking price for homes that aren’t worth anywhere near that and won’t be for years That’s a little nuts. You’re not going to get a break on price in this market, but you don’t want to be gouged either.
Come in with your best offer. In a multiple offer situation, you rarely get the opportunity to deal with a counter-offer from the seller. The seller has choices, and they will pick the best offer, usually right on the spot. (Sometimes there are two offers that are so similar they will send both back to improve them, but that’s rare.) You cannot rely on having an opportunity to revise your offer. There is absolutely no point in coming in with an offer below list price: all you do is help drive up the price for the successful buyer without any prospect of success yourself. Why bother? (Pro tip: I usually add an extra $ 100 to an offer price just in case two turn out to be exactly the same. Yes, you can lose a bidding war by $ 100.)
It’s not always about money. In one of my recent listings, we had seven offers. One was much higher than the one we accepted because that buyer did not give us the closing date we’d asked for. My clients had bought a new house and needed an early closing date as they couldn’t afford to carry two properties, even with bridge financing. They went with the lower offer that gave them their preferred date.
If you can give the seller the closing date they want, you have a much better chance of getting the property. For my sellers, having more money down the road with a higher sale price later on didn’t help them now: they needed to get the money out of their current house to pay for the new one within their time lines.
Be persistent. There are still great houses out there. Yes, it’s frustrating, I know, but if you have a good realtor and move quickly, and are smart about it, you will eventually find a home. My last five deals for buyers were all multiple offers and my buyers got their dream house every time: they’re delighted. And they went in with their eyes wide open.