Help!! Dealing with Multiple Offers When Buying a Home

[nejo]

Hi All,

Since most of you seem to be quite savvy and knowledagble I thought I would get some perspective from the RFD community. I am currently in the market to buy my first home. We are ready to put an offer on a house and have lost out on three previous homes due to multiple offer situations. We want to place a bid on a home in the next day or so but we know it will sell for above asking price. In the previous two cases the buyers were willing to purchase without any conditions (some even had their own inspectors out looking at the houses before they put in a bid). I've always been advised to have at least the following:

- Condition on financing
- Condition on inspection
- Condition on lawyer reviewing documents

We have great credit and the brokers all seem to think we would have no problems carrying the mortgage as we are playing it quite conservative in terms of our buying price. We have been pre-approved, my buyers agent wants us to lift out the condition on financing to make our bids more appealing (and i'm sure to get his sale done quicker). He also wants us to get the inspector in ahead of time to do a quick check as he thinks the place is solid. I've always been told to have the finance condition in as it protects you in case the appraisel is deemed lower than the selling price.

I have to admit, I hate being in multiple offer situations but it seems to be quite normal in the areas that we want to buy in. Does anyone here have any experience in dealing with these types of situations? Any advice would be appreaciated. Can anyone also recommend a good home inspector that might be able to look over the house in the next few days? The agent has recommend a few but I know that they would have a vested interest so I'd rather get my own.

All suggestions would be welcome.

Thanks,

Nejo

[bionicbadger]

those 3 conditions are there to protect you. none of them are restrictive or outrageous, and most people include them.
-There might be a lein or something on the house and the bank may deny your "pre-approved" financing since the title isn't clear.
-A home inspection is more than a "quick look" and can save you a ton of money and headaches down the road
-a lawyer will prevent you from getting screwed over by a badly worded contract.

[pipolchap]

when we bought our home, 2 yrs ago, it was also a multiple bid situation. we went LOWER than asking and offered off round numbers (e.g. $X62,000 vs $X60,000) to beat round numbers and demanded no conditions.

Its risky, but many sellers prefer clean offers over conditional higher $$$ offers....

Otherwise bring someone who knows about houses during the open house, that might help, or just cross your fingers. :cheesygri

[TrevorK]

I wouldn't pass on any of those conditions - especially the home inspection. Is your realtor qualified to tell you if the electrical is up to code? The grade of the lot is correct? The flashing/shingling done properly?

Never skip the home inspection - if you do you're rolling the dice, at which point you might win, you might lose.

[CSK'sMom]

Usually when a seller is trying to set up a multiple bid scenario the realtor suggests that the seller has a home inspection done and available to potential buyers. :confused: As for the financing clause, there is no way I would remove that. A pre-approval does not always mean that the bank will mortgage that particular property, as has been discussed here before.

[Bullseye]

Some good advice above, don't compromise too much, you could end up in abad spot if something goes wrong.

I'll also add for you to not use any home inspector that your agent recommends. They have vested interest in glossing over problems, as if they kill an agents deal, that agent will likely never call them again.

If you're in or near Halton, I can recommend a good inspector who I always use.

[dark169]

If the market is good and theres lots of offers you need to place your best offer, if it sells for more then the house was more expensive then your willing to spend. Buyers get frustrated at this of course but you never here the buyers complain when the market is cold and sellers jump at the first offer :lol:

Your conditions are totally reasonable and imho expected. If someone isn't willing to except your condition of home inspection then the only thing you have to ask yourself is why?

[nejo]

Thanks everyone for taking the time to respond. After reading all your posts, I think I'll keep to my initial plan and include all of my conditions. If the seller isn't interested in my bid then i'm sure it wasn't meant to be and we'll just have to keep looking. The last thing I want is to buy a house and doubt whether it was a sound purchase. RFD is way more helpful then a buyers agent, has anyone here actually had a good experience with a buyers agent?

Cheers,

Nejo

Ps. Bullsyeye: Thanks for offering to recommend a home inspector , we live in Toronto and are looking to buy in the city.

[sparkplug]

I read an article two weeks ago that in the hottest markets right now a large number of buyers are not listing home inspection as a clause and try to submit unconditional offers. Since any decent property receives multiple offers (I had a situation recently that had 11 offers), it's the convenient offers that often win out. In a desperation market for a decent home, it's either go unconditional, pay substantially higher than the unconditional offer(s) or lose out everytime.

Even if there's a conditional offer higher than an unconditional one, there are negotiations that occur to bring an unconditional offer up to the highest offer.

I bought a house just over a month ago unconditionally that I had to pay $17,000 above the list price. Investing in properties by paying so much above list price can be a gamble. And I had to pay cash (no financing).

Fortunately for me and unfortunately for other buyers, the market price in that neighbourhood are listing for $50k-75k higher than I paid, so I'll be re-listing it shortly for market price. Fortunately for me (and once again unfortunately for buyers), there'll be a bidding war, multiple offers and people will be waiving conditions.

Even though I anticipate a profit, I don't encourage others to do it this way unless you're buying quality properties in the right market conditions.

[nejo]

Sparkplug,

Thanks for the info that was really helpful. Damn, looks like we are screwed either way i.e. unconditional we take the risk on and will stay pay over market value, conditional we eliminate some risk but will pay out the ass if we want it. If you were to take out one of the two conditions which one would it be and why?

My thoughts would be to get the house inspected ahead of time and take that condition out but leave in the Financing because we will probably end up paying more than market value which could be an issue with the appraisal .... any thoughts?

Nejo

[boyoflondon]

Even though I anticipate a profit, I don't encourage others to do it this way unless you're buying quality properties in the right market conditions.

The thing is, its not very likely that you'll loose money on property as its a fact that properties only rise in value. Now, as you said, it's just a matter of finding the "hot spot" where you'd get the biggest gain.

I know our house here can be sold for at least 50 grand more than what we originally paid .. The best thing to do is to buy new house in a new neighbour hood as that is where you'll make the most profit.

[ayeung]

I always wonder how one can get multiple offers because they have to come in the same day?? 11 offers? That's definitely exciting.

The offers that I got from my previous house all came in on different date and the offers all came in in the afternoon and expired at mid night the same day. So, I have to made the decision right away when I went home at night. I could't possibly tell the buyer to give me a few days or a week to see if there will be more offers coming because both agents were present when they reveal the offer and the potential buyer was actually waiting at the lobby too.

[nejo]

They can get 11 offers in one day because it's a strategy that agents are using in hot areas. They typically list the house on the market for 2-3 days ... say on a thursday with an open house on the weekend. Then the selling agent will ask all offers to be in on the Monday between say 5-7pm.

That has been the case in all of the situations that we have been through.

[Bullseye]

Yeah, what Nejo said. Realtor trick, and it sometimes backfires on them (and the seller). When they state they are accepting offers on a certain date, the potential buyers know right away what they're trying to pull, and that puts them off. It certainly would to me!

[sparkplug]

Yeah, what Nejo said. Realtor trick, and it sometimes backfires on them (and the seller). When they state they are accepting offers on a certain date, the potential buyers know right away what they're trying to pull, and that puts them off. It certainly would to me!

Most listings in hot markets come out near the weekend: Thursday night or Friday morning. Then the seller leaves for the weekend and thus the realtor requests that all offers be left open until the weekend is over. That maximizes the number of showings and offers. Even if the offer is only left open for 12-24 hours, that's enough time for another two dozen showings on a nice weekend.

I went to see a house on Saturday at noon. It was the first 24 hours on the market. 20 realtors had already seen it before me and there were five realtors lined up outside to see it after me. That house was a handyman's special and next to a busy street, but it sold for above the list price by Sunday night.

Two months ago in Calgary, there were only 850 active listings on MLS and thousands of buyers. Average house prices in the area have snowballed from $300,000 to $342,000 since the start of the year, which has already met the real estate board's forecasted 12% increase for 2006.

If a decent property comes out and you boycott because you don't like the conditions, you're reducing your available supply. If you don't want it, someone else will probably take it. Put it this way: it would've been better to win a bidding war at $315,000 in January for that $300,000 house than wait a few months and see it increase to $342,000.

[Audiogenic]

If a house is listed and is not taking offers until a later date, you could negotiate to have an independent home inspection BEFORE the offer date so that you can remove this clause from your offer (assuming the home inspection passes). This gives you better leverage to win out. If you really want the house and don't mind losing $200-$300 for an edge, it's worth considering.

[sparkplug]

Sparkplug,

Thanks for the info that was really helpful. Damn, looks like we are screwed either way i.e. unconditional we take the risk on and will stay pay over market value, conditional we eliminate some risk but will pay out the ass if we want it. If you were to take out one of the two conditions which one would it be and why?


The CMHC has a book on home inspections. I saw it at Chapters today in the Home Improvement section. Also, here's a link I found that offers a free guide:
http://www.amerispec.ca/english/brochures/5_home_inspection_guide.htm

As part of the showing, you can take ten minutes to do your own inspection. Take a visual scan of the roof and look at the shingles. Check the basement for foundation cracks and water stains. Look under the sink for water stains and mold. Walk around the house and look at the grading to see if water might flow towards the house. I check out the vintage of the furnace and the hot water tank. I even turn on their taps. And so on. The realtor is supposed to declare if the house was a former grow op. I have tolerance for minor problems (i.e. cheap to repair), so as long as it looks structurally correct and I see no water damage, then I'm good to go.

[jande9]

The thing is, its not very likely that you'll lose money on property as its a fact that properties only rise in value.

This is completely false, properties rise AND FALL in value.

Considering the buying frenzy going on now, plus interest rates going up inexorably, the market is due for a correction. I've owned property since the early 80's and I've seen some big corrections. It's not fun paying off a $150,000 mortgage on a property worth $125,000.

Here in Vancouver some people who have owned rental properties for a while have started to sell and lock in their profits.

I think the OP is right to be cautious and careful.

[fly]

I would keep the inspection clause and put in a bigger offer instead. I read in the papers that, in Calgary, people got so stupid with bidding that they remove all clauses only to find that they've bought a grow-op house and the foundation is gone. Those people would have to tear down their house and rebuild.

You can get a pre-approved mortgage and waive the financial approval clause. Your lawyer will tell you most purchase agreements are standard so you can waive that too. But the inspection clause, keep it!

The agent is supposed to disclose that kind of information if the *current* seller was involved in that kind of activity; however, not required (to my understand) if it was the previous seller and the current seller was had.

[sparkplug]

You can get a pre-approved mortgage and waive the financial approval clause. Your lawyer will tell you most purchase agreements are standard so you can waive that too. But the inspection clause, keep it!


The last time I bought a house with a pre-approved mortgage, the bank said I still had to put down "subject to financing". Even though I was guaranteed a mortgage up to a certain limit, they still had to approve the property I was purchasing. For example, they can refuse to lend me $300k for a property they felt was only worth $200k even though I was pre-approved for $500k. They also reserve the right to appraise a property (at their cost) before approving your mortgage.

[CheapScotsman]

The bank will only lend you up to what they agree the house should be worth so I would keep the "subject to financing"

A house inspection is going to find two things; major issue or minor issues.

> Anything on the minor list you could fix yourself (or have it done after buying) ...
> The ones you really want are the major issues which, as sparkplug outlines above, are things like; poor foundation, water infiltration, mold, mildew, structural issues ... you could have these covered by yourself, an inspector or Holmes on Homes during your house tour. Do it then don't have a "subject to inspection"

I've never seen a "subject to lawyer review" ... cause they are going to review it anyway during the legal stuff and if something is "illegal" then you won't be doing it anyways.


On top of all of that ,,, your buying agent should do his homework and recently selling price profile to make sure that you essentially one of the top bidders for the place.

[BobW]

Having just bought a property 2 months ago in Calgary, and after looking for 7 months... be prepared to make the unconditional offer. We lost out on several properties due to the multiple bid thing. When it comes time for me to sell, uncoditional is better. I'd probably figure a 3-5% difference in price if there were conditions over no conditions.

There were a lot of properties we thought were overpriced 6 months ago that I'd have loved to own today.

As to the various comments on some of the condition issues:

1) If you are pre-approved for a mortgage, you shouldn't really sweat the appraisal. Worst case, you wll have to cover the differnce between appraised value and your offer (i.e you offer 350K and the appraisal comes back at $340... you should be prepared to cover the 10K difference). This can be a burden especially if you have minimal cash in hand.

2) Grow Ops, etc... In Alberta, if a house has ever been a site, it has to be disclosed. This rule is very new (in the last couple of months). Before that, if a house was used as a grow op, it was typically condemned by the city, so you knew that as well.

[nejo]

Hi All,

Thanks for all the info. As an update, we lost out again. I had the house pre-inspected before we put in an offer. The inspector wasn't all that impressed with the place and five other people had it inspected on the same day. The only condition we put was the finance and we lost out by quite a bit. Our offer was about 7% above asking price. The house sold for more than 15% above asking with no conditions. It's getting pretty crazy in some areas and there are lots of people out there that will buy with out any conditions. As we are first time buyers, it's way too nerve racking for us to buy with no conditions. I think I'm just going to avoid as many multiple offer situations as possible.

Cheers,

Nejo

[superdsi]

IThe housing market will correct.
It really will.
Don't get caught up in the mania.
You don't have to get that house.
Be cool. Be smart and you will find something.

[sparkplug]

Unless the list price is considered cheap in that area, an offer that's 15% above the asking price is quite stunning! The large majority of coveted properties I've seen sell lately are indeed above asking price, but it's uncommon to see one sell for 15% higher. How did you know to offer 7% above the asking price? Did the realtor tell you about multiple offers?

I agree with BobW that six months ago I saw houses at prices I wasn't interested in paying. Now those same houses are another $60,000 (20%) higher.

I read an article today that said Vancouver households spend 57% of their income on house expenses. I think Toronto was around 42% and Calgary is somewhere around 37%. Depending on how you interpret the stats, housing prices in Calgary still has quite a bit of room to grow.

[CheapScotsman]

The 15% over asking may not be unusualy if the seller priced it as such with the full intention of attracking multiple bids.

You missed by 8% (which is $32k) on a 400k place ... the bigger issue is why did you miss by 8%. You (or your agent) need to fine tune the system you are using to determining your bid price. Did you do a through analysis of the recent (last 3 month) solds in the area, etc?

[nejo]

Hi All,

Mutilple bid situations are tricky, I mean even with proper research and stats on the area (which we spent lots of time preparing), no one has a crystal ball. All it takes is one crazy couple who love the house to bid as high as they want. This house attracted a lot of attention. We had to put in a bid by a particular time, we waited last minute to see how many bids were registered before we put in our offer. The house in the area and the neigbours (identical house layout) had all sold for slightly less then this property was listed for, so it wasn't priced too low to start with. The property was designed quite nicely (exposed brick, skylight, hardwood, rental income from a finished basement with seperate entrance) and attracted a lot of yuppies who have the cash to spend. The agent wanted to go in at over 10% above asking with no conditions, I said 7% with the condition on Finance, because that was all I was willing to pay, and I didn't want to have no financial condition, so we lost. Point being you can do all the research you want i.e. spend hours on mls, speak to multiple agents, neigbours on the street, members on RFD but if some one with the money who is willing to take on the risk wants that property you can't do anything about it.

Nejo

[pipolchap]

Sorry to hear about your unsuccessful bid...

Here's another tactic you can use, and has been used many times. Get rid of your RE agent and go to open houses on your own. If something interests you, talk to their listing agent and tell them you have no agent and are interested. This sets that agent up to act as a dual agent (i.e. they'll get all the commissions). You'll soon find out that they can be very helpful...

Since you have been hunting for some time, you have a good idea what the houses are going for in your area of interest. Sometimes (actually most of the time), the agent will lower their fees since they're getting the seller and buyer fees (2.5% + 2.5%). That few %'s can save you alot of money and get you (sometimes unethically) some inside info...

I'm not saying ALL RE agents are scumbags, but lets be real... ;) don't hate the player, hate the game...

[odd person]

hi! it's peterbrowne, using matthew's laptop while he's in the washroom :) look up REBBA 2002 and consult RECO www.reco.on.ca

[b0rk]

Sorry to hear about your unsuccessful bid...

Here's another tactic you can use, and has been used many times. Get rid of your RE agent and go to open houses on your own. If something interests you, talk to their listing agent and tell them you have no agent and are interested. This sets that agent up to act as a dual agent (i.e. they'll get all the commissions). You'll soon find out that they can be very helpful...

Since you have been hunting for some time, you have a good idea what the houses are going for in your area of interest. Sometimes (actually most of the time), the agent will lower their fees since they're getting the seller and buyer fees (2.5% + 2.5%). That few %'s can save you alot of money and get you (sometimes unethically) some inside info...

I'm not saying ALL RE agents are scumbags, but lets be real... ;) don't hate the player, hate the game...

How about his original RE? You'd leave him lucked out..I hope you expect to pay him something right? at least for the effort of driving you around and showing pretty homes?

[pipolchap]

How about his original RE? You'd leave him lucked out..I hope you expect to pay him something right? at least for the effort of driving you around and showing pretty homes?

you're right... if you have an exclusivity agreement, you're stuck for the duration.

[PC-stuff]

Buyers generally don't have a formal agreement with an agent.

However a good agent will earn your trust and be worth it in the end.
(e.g How do they handle a for-sale by owner sign that you may spot?
Avoid it or suggest you may want to check it out?)

I don't see any benefit in using the sellers agent when there are
multiple bids. The agent is conflicted and his loyalty and
written agreements are elsewhere.

[sparkplug]

I don't see any benefit in using the sellers agent when there are
multiple bids. The agent is conflicted and his loyalty and
written agreements are elsewhere.

What if...
- The seller's realtor receives an offer for $300,000 from another realtor. Each realtor takes $6,500 commission.
- You approach the seller's realtor directly and offer $298,000. The seller's realtor takes $13,000 in commission.

What if...
- The seller's realtor receives an unconditional offer for $300,000 from another realtor. Each realtor takes $6,500 commission.
- You approach the seller's realtor directly and offer $300,000 with conditions. The seller's realtor takes $13,000 in commission.

Which offer will the seller's realtor try to promote more to the homeowner given that the realtor stands to earn twice as much money? We're not talking about chump change.

In fact, what if a realtor with no integrity doesn't even present some offers submitted by other realtors so he/she can preserve a full commission? If the seller's realtor receives ten offers, how would the seller even know ten were received? What if the realtor only presented six of them? How would the seller know to ask, "hey, where are the other four offers?"

Realtors are salespeople. We've all dealt with good ones and bad ones.

[nejo]

Back Again,

Man the RFD community rocks, people on this forum have given me better info than what most RE agents will. Re: Paying my RE for taking us around, I didn't sign a buyers agreement with him (once you do most don't work as fast) and he wasted a lot of my time and money as well. He was referred to me by my gf's father who had done multiple deals with him in the past but I don't think I got the level of service that my future father in law received. Most of the houses he showed us were actually ones that we found ourselves. He was busy with other deals so I always felt pressure to close quick cause I was wasting his valuable time. He would be on the phone with other people while he showed us a house and I don't think I ever heard him say that he didn't like a home that we saw, they always seemed like the right fit. He was always more attentive when we saw a place with my gf's father, which really annoyed us. Anyways I don't want to sound like a RE basher, I know there are good ones out there but like other sales/commisioned based jobs you always have to be on your toes when dealing with people that make a living from selling a product/service, especially something as expensive as a home. We were honest with him just before this final offer and I told him that we weren't exactly happy with his service. After being through a few of these situations, I think I may just go in alone or have some one negotiate the price for a flat fee. I mean without signing a buyers agency agreement, your agent isn't obliged to represent you.

Cheers,

Nejo

[PC-stuff]

Back Again,

Man the RFD community rocks, people on this forum have given me better info than what most RE agents will. Re: Paying my RE for taking us around, I didn't sign a buyers agreement with him (once you do most don't work as fast) and he wasted a lot of my time and money as well. He was referred to me by my gf's father who had done multiple deals
...........
I think I may just go in alone or have some one negotiate the price for a flat fee. I mean without signing a buyers agency agreement, your agent isn't obliged to represent you.

Cheers,

Nejo

It is time to get another agent.
A good one will show you only the types of homes & places that
you say you are interested in. They will tell you the good and the bad about a place. Homes are constantly being listed.. a good agent will alert you to ones that might interest you.

To Sparkplug:

Your argumement showed exactly why it is better to not use the sellers agent. And, any agent that pulled the tricks above would have his licence revoked and would likely face charges. e.g. If there are two full price unconditonal offers, the earliest one gets the deal. Your agent (and you) can easily find out the price and date of every home sold.