What's the Buzz with Multiple Offers!?

Toronto, ON

We've all heard it thousands of times, home's are selling "Over Asking" price in just days since they were listed. Many uncredited news sources are starting to over emphasize how expensive the housing market in Toronto and the GTA may really be. And I do admit it, home prices in Toronto are rising very quickly, which is making real estate one of the best investments people can make. 

But when it comes to all the buzz in the city, homeowners are becoming significantly more curious about what is really happening to the Toronto housing market. Are homeowner truly getting extremely high vales for their property?!

Unfortunately, the news that many Torontonian's are hearing sounds familiar to articles released by the phonies over at TMZ to me. Most of those who complain about the Toronto housing market are barely even in the position to be enjoying the benefits of land ownership. 

Let's get a background of what Multiple Offers really are. Your local realtor may suggest a multiple offer strategy as the best way to sell your local Toronto / GTA property. As a homeowner, you may get excited at the idea of several buyers "bidding" on the price of your home, and ultimately raising the price. But are you really getting more money for you home? This strategy is great for areas with extremely high demand areas where homes are selling in just a few days. Keep in mind, basic economics suggests that when supply is low and demand is high, buyers are willing to pay a higher premium for homes. Multiple offers do not generally work in areas where homes are taking a significant amount of time to sell, this may include expensive areas as many may not be able to afford an expensive property or acquire the mortgage! Consult your local realtor to research the DOM which is an acronym for Days on Market. If homes are well priced, and still taking too long to sell, chances are the demand in that specific area is not great enough to properly execute multiple offers. 

When pricing homes for Multiple Offers, agents will generally price the home for 25% below the market price, or value of the home. As a result, the potential interest from several buyers may arise, and resulting in a bidding war. As soon as the home sells, agents run around promoting the idea that they SOLD the home over asking price in just days! Im not going to lie I do it this too, but don't let the idea fool you as the homes are eventually still being sold near fair market value. 

But if homes are selling near that market price, whats the point of going through all the hasstle of advertising and dealing with as many as 10 potential buyers? In the real estate world, there is a small selling issue known as "Conditional Sale". Buyers, will add conditions to their offer that can act as an escape in case they change their mind. A common example would be a home inspection, if the buyer is not pleased with the results of the home inspection, this can be something as small as a crack in the drywall, they can widthdraw from the deal. With multiple offers, sellers are not strictly looking for a better price, but an offer without conditions to prevent buyers from widthdrawing from their deal! Chances are, if a buyer really wants to purchase a property, they will provide a firm, no conditional offer even if the price may be a bit lower as the sale will be final as soon as the sellers accept.

So the next time you hear about homes selling over asking, don't get too excited and think the prices going out of control. The strategy is mainly great for receiving a firm offer without conditions, even if the offer price is below what the owners were looking to receive. 

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Arthur Furs

Arthur Furs

Sales Representative
CENTURY 21 Atria Realty Inc., Brokerage*
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