We have a wonderful couple that we are working with to find the first home. They are fully qualified, have a great down-payment and are ready to become homeowners. However, after their first offer on a property they did not end up buying they have the knowledge of how things work and that information will help them secure a home.
Here is what their first attempt to buy looked like from my perspective. We had them sign an offer to purchase on Sunday afternoon and by 5 P.M. the presentation time there were 5 other competing offers for the Seller to consider. Within the hour the number of competing offers increased to 18. Eighteen different buyers offering on the same home. I have come to understand that with this high volume of offers, there will be an overly excited or desperate Buyer who will offer a number that will be shocking. In this case, we were not disappointed. The home sold for $270,000 over asking! The last sale on the street of a smaller model was…. $265,000 less than this home sold for, and that was 6 months ago.
So how can I even suggest that Buyers might be helping to drive prices up in Oshawa, Whitby and Clarington?
Let’s take a look and see how the offers play out.
Recently I had a home listed at $700,000. We anticipated that the home would sell for somewhere around the $750,000 range and based on the fact that homes were selling over asking in this neighbourhood we listed the property in line with the market. We ended up having 21 offers submitted by different Buyers, with a range of offering prices that went from low to high. By breaking down the offers into price categories we can gather some information about where the individual Buyers were on their journey to buy a home.
Experience has taught me that Buyers offering for the first time make different decisions than Buyers who have offered on several homes and lost out.
There were 4 offers that came in in the $750,000 - $800,000.
There were 5 offers that came in in the $800,000 - $850,000 range.
There were 10 offers that were presented in the $850,000 - $900,000 range.
There were 2 offers that were presented above $900,000.
When this particular home was sold, the average list to selling price ratio was 120%, meaning that homes in the town sold for 20% over the asking price that particular month. As the offers rolled in on the presentation date, a Buyer offering $750,000 would based on the selling statistics, be offering almost $100,000 less than the statistics indicated the home “should” be worth. If we look at these offers there are several reasons that the Buyers chose the strategy of a low offer; 1) they were offering on a home with little experience of how the process works, 2) they were using an Agent who did not understand the local market, or, 3) they were offering based on bank qualification limit.
The offers that came in from $800,000 - $900,000 were Buyers who understood what it might take to purchase the home. One would determine that by offering based on the metrics of what homes are selling for would result in a successful bid, a seasoned Buyer would understand it would still be a “coin-toss” for an accepted offer.
The Buyers offering over $900,000 were determined to purchase a home. They went over the average of what the home should sell for and still went in with fingers crossed for a successful bid.
What I have learned from presenting hundreds of bids on my Sellers' homes in 2021 is that when you have over 20 bids on a home, the serious Buyers will do whatever they need to do to buy a home. What causes the process to drive the prices up are Buyers who offer with no chance of Buying. In this case, there were 8 offers below what the market indicated the home was worth on the low side of value. What happens when you increase the number of offers by 8 is the serious Buyers, ones who have lost out on many homes or those who are desperate to get into a home offer prices dramatically higher than what the comparable home sales indicate the home would be worth. An example would be that a home has 2 offers presented to the Seller. In this case, the Buyers would use market value as a way of determining value. With 20+ offers it is a bit like playing “pin the tail on the donkey.”
I feel that Buyers who enter into the process of bidding on a home, who are either not serious, educated in the process or have unrealistic expectations are part of the problem of the exploding Real Estate prices.
Truly what will end this bidding up of values is more inventory. More inventory and a pool of Buyers who understand the market.
Over the years I have seen a range of Buyers from dreamers to desperate Buyers who will pay what they need to buy a property. The market we are currently in has every type of Buyer you can imagine, and along with some other factors, is one of the issues driving prices.
If you have questions about the Buying process or are looking to find a fast track to buying a home, reach out… firstname.lastname@example.org
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