Q: How much should I offer over the asking price if there are multiple offers?
Short Answer 1
A: $5,000 per offer.
Short Answer 2
A: Nothing. Don’t compete.
Long Answer
List price is not market price
First of all, the vast majority of houses listed for sale are listed above market price. It’s just the way real estate is done in Waterloo Region. A home seller lists at $339,900 and expects to get $330,000 – $335,000, and normally does. If the seller doesn’t expect to get about $5,000 – $10,000 less than asking price, if the seller is just “trying it out”, chances are he is wasting everyones’s time, including his own. If he’s waiting for someone to arrive from Toronto, Calgary or Vancouver with a suitcase full of money, it will be a long wait.
I recently wrote that nearly 40% of houses listed last year on our local MLS – the Kitchener Waterloo Association of Realtors – did not sell. The problem may not be price, but price solves all problems. It’s true.
Of the houses that sold and are currently selling, the average sale price to list price ratio is between 97%-98%. If a seller expects to sell, they should expect to receive 97-98% of their list price. Put another way, if a buyer expects to win the bid, local statistics tell us that he will be successful at 2-3% off the asking price.
That’s assuming that the asking price is correct —> 2-3% above the market price.
We are all working from the same information
The great thing about real estate is that we have a lot of great information.
We have historical information about the house itself, when the current owners bought it and what they paid for it, historic information about the neighbourhood sales, expired listings, and cancelled listings. Current information about what’s for sale, and what’s just sold. We have the tools and the information to know what is really going on in the real estate marketplace.
If you pay list price, you’re paying too much
Long story short. Sellers don’t expect to get list price. If you pay asking price, list price or offering price you are paying over market price.
A dog in the fight, but no skin in the game
As a general rule I don’t like business jargon. I like small words and short sentences. I sometimes like to break it up with a long sentence, one with lots of parts, separated with lots of commas, which I also love – my favourite punctuation, but normally I don’t. But back to jargon. I don’t like it. There are however a couple of expressions that I kind of like:
To have a dog in the fight.
To have skin in the game.
They are similar expressions but different in terms of personal harm, financial or otherwise possibly being the outcome. Realtors are dealing with other people’s money. We don’t have skin in the game but we do have a dog in the fight. We want you to buy. We want to get the deal done. That a little harsh and simplistic. We are of course, also looking out for your best interests, putting your interests ahead of our own.
How much should I bid in a multiple offer situation?
A: You have to know that you are likely going to be paying more than market price. My advice to my clients is to walk away. Do not compete. Don’t get drawn into the game. At this moment in time (early March) there are nearly two thousand homes listed for sale through KWAR – the Kitchener Waterloo Association of Realtors (MLS). There are always other homes available to buy. Don’t give yourself pressure and don’t accept pressure from your realtor or the seller to buy that house.
If you do, besides paying over list price, your offer will have to be as “clean” as you can risk.
And fewer/no conditions
If you are going to get involved in a multiple offer situation, besides the above advice – pay $5,000 over listing price for every offer, you also will want to make your offer as acceptable as possible. This means removing unnecessary conditions. You’re putting yourself under a lot of extra pressure and risk, but if you really really want the house do this too.
Cash offer
If you’ve been pre-approved for a mortgage, you can remove the Mortgage condition. This is risky because if you pay more for the house than the bank thinks its worth, and as such they may not give you the mortgage for that house.
No home inspection
The sellers don’t want to tie up the hot listing waiting for the home inspection and potentially flaws found and argued over. A clean offer does not have a Home Inspection Condition.
No SBP
The Sale of Buyers Property Condition (SBP) gives you, the buyer six or eight weeks to sell your home. In a multiple offer situation, no reasonable amount of money over the asking price will be large enough for most sellers to accept your offer with an SBP. This one will disqualify your offer outright.
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