This week we are tackling the oh so scary topic of offer nights and multiple offers. If you’ve been looking to buy/sell property in Toronto, you’ve probably noticed this coming up a lot. If you’re buying/selling in the GTA, then you’re probably seeing that offer nights and multiple offers are now commonly leaking outside the city as well. So let’s talk about it. What is an offer night? How do you end up in multiple offers? And most importantly, what does it mean for you?
When you list a property, you have three choices for the list price or the sale of the property. You can list it at market value, above market value, or below market value. This decision should be based on a fulsome conversation with your realtor about the the advantages and drawbacks of each strategy. It’s often heavily influenced by what strategy that similar and competing properties are using, and the current market conditions. Mostly commonly under pricing is used in a seller’s market, where buyer demand is outpacing supply.
When you elect to list the property below market value it’s often accompanied with an offer date. This means indicating that the sellers are not going to be considering offers until a particular date and time. The idea here is that you have the property on the market for a short period (say a week or less). Then you generate a lot of interest by maximizing showings and exposure as well as increasing your potential buyer pool by having a lower price threshold. Finally, you encourage multiple offers by limiting the time period in which people can make an offer. In general, the more people through the property, the more offers, and the higher the sale price. While it doesn’t always unfold in this way, it’s a common trend.
For official offer dates, the sellers have to give expressed written direction to hold back offers until a specific date. They also have to indicate whether they will entertain pre-emptive or bully offers. Bully offers are offers that are submitted before the official offer date. To be successful, they must be aggressive enough to convince the seller not to wait until offer night to see if they can do better. Once the seller has decided to look at a bully offer, the listing agent must notify all parties that have booked a showing or expressed interest in the property that they are changing the offer date (there’s more to discuss on bullies, but it’s worth it’s own blog, so this will suffice for now).
People have a hard time wrapping their minds around the offer night, under pricing, and multiple offers. It has shock value when a property is listed for $899,999 but actually sells for $1,250,000 after 15 offers. But is it really so crazy when the property was worth $1,250,000 all along and was simply listed much lower? It’s so much less crazy when you know that only 3 or the 15 offers were even close to the sale price and thus, serious contenders. Some people who aren’t accustomed to this practice see it as misleading. From the seller’s perspective, however, it can be a great strategy for them and often puts them at a disadvantage not to use it if everyone else does. Here are a few reasons why offer dates with under pricing can be effective:
- They are limiting the time period for showings which minimizes the disruption on their day-to-day lives. To sell a property for the max price point, there’s considerable prep and staging. While it isn’t always possible, it’s often advisable that the sellers vacate the property during the listing period to minimize stress and have the property showcased at its best. It’s especially important right now with COVID and health concerns.
- The combination of under pricing with an offer date has been shown to be an effective way to generate interest and maximize value in the right market. When buyers are competing against other offers, they do not know the content of those offers. They only know they are in competition. So remember even if 12 or 15 offers aren’t high enough, the optics of competition volume still work in the seller’s favour.
- This strategy gives the seller more control over the process and provides structure and expectations for the buyers who are interested. It gives buyers a clear time frame from when they can make arrangements to see the property and prepare an offer.
If you’re a buyer looking to buy in an area where offer dates and/or multiple offers are common, here are a few tips:
- Most importantly, come prepared. If you have the advantage of knowing you’ll likely be in competition, then be ready. Do everything you can to bring a firm offer (no conditions), try to be flexible on closing and other details, and have your deposit ready to go.
- Have a few conversations about the value of the property. What’s the value to you? What’s the value it will be appraised at? Have a conversation about what you’ll offer if you’re in competition and if you’re the only offer. You’ll have to adjust on the fly depending on circumstances, but if you’ve already thought about making adjustments, it’s easier under pressure. Also decide on a maximum price point of what the property will realistically be appraised at, and what price you’d be comfortable losing the property at should someone outbid you.
- During the listing period be ready to get an offer together quickly should there be a bully offer ahead of the offer date.
- Have a plan to keep your nerves at bay. It can be a stressful experience, so come prepared and have a way to manage the tension.
On another note, the offer date style we are often seeing in the GTA is slightly different. The property will be listed close to market value, but the sellers will ask for a 24-or-48-hour irrevocable (an irrevocable is the time period from when you submit an offer until it expires. During this period, you cannot retract your offer and it remains in the other parties’ control to accept, sign back, or reject it). How does this unfold in practice? For example, as the buyer, you submit the offer with this 48 hour irrevocable period on Monday at noon. This means the sellers have your offer (that you can’t take back) and have until Wednesday at noon to decide what they want to do with it. The listing agent indicates they will present offers to the seller on the following evening at 8pm. Until then, the listing agent has 32 hours to get in contact with other potentially interested parties to encourage and entice other offers. This is how even without an official offer date, you may end up competing in multiple offers. You can also end up in multiple offers without an offer date or long irrevocable when you submit an offer, and someone else happens to do so at the same time.
With the right guidance and strategy you can successfully navigate offer nights, multiples, and bully offers. For more information on preparing for real estate negotiations check out this blog.
