Overview
For those in the market for a home, the current low supply of available homes and high level of interest has been translating into new challenges in securing property. In the real estate industry we refer to this as a “seller’s market,” as it gives the advantage to the seller.
The measurement used to determine whether we are in a Seller’s, Balanced or Buyer’s market is known as the Sales to Active Listings Ratio, which compares the number of transactions to the number of homes available in the MLS system. By this measurement, the market is considered balanced when the ratio measures between 15 - 20%. When the ratio dips below 15% it’s considered a buyer’s market, meaning there is a healthy supply of available homes, and in these conditions sellers must compete to be attractive, usually through pricing. When the ratio climbs above 20% it’s considered a seller’s market.
Currently, the ratio in Vancouver sits at 60% sales to active listings. In a local market with three times the percentage it would take to be considered a seller’s market it’s fair to say that conditions are currently weighted heavily in favour of those selling homes, and this can be a disadvantage for those looking to buy.
With extremely limited supply and a high volume of interest buyers are often in tight competition for properties. With the exception of pre-sale properties, which I’ve blogged about recently as an attractive alternative in these conditions, buyers in this market will likely be facing a multiple offer scenario when bidding on a home. Accepting that the seller has the upper hand in negotiations is key in preparing an offer that will ultimately have the best chance at success.
The Current Landscape: Case Study
To illustrate the challenges facing buyers in a competitive market, I’ll share the details of a recent transaction, one with the hallmark examples of the current conditions.
My clients are a family including two civil servants with two young children and a new puppy. When listing their home for sale, a well-kept 4 bedroom home including a basement suite, they communicated their motivation for selling was to buy a home with a bigger lot, more space and a shorter commute, all very familiar.
The home was priced competitively, and prepped to show. On the first weekend after listing the property I hosted a very successful open house and I advised interested buyers and their agent’s that my client would be looking at offers on Monday evening. This is where it gets interesting in today’s market...
By the deadline on Monday evening we had 9 qualified buyers ready to offer. Amongst those nine offers, some were subject-free, some had longer or shorter closing dates, some had larger and smaller deposits. Some potential buyers wanted to keep the tenant in place, others wanted a vacant home at possession. Amongst these wildly different competitive factors, advising my client on which was “the best” was a matter of deeply understanding my client’s needs and preferences.
If you’re thinking that the highest offer always wins you may be surprised! The reality is that when buying a home in a multiple offer situation, you have to consider all the factors. Understanding what motivates the seller will help in preparing an attractive offer that beats out the competition. There are financial, timing and practical considerations that will ultimately make your offer stronger and more likely to win. Remember also, when offering to buy someone’s home emotional factors come into play during negotiations as well.
My Sellers have a young family, they work long hours and are strapped for time. Sounds familiar! While they have good local incomes, they are also looking at the prospect of presenting multiple offers of their own to purchase their next home, so will need to remain financially fluid enough to act quickly.
Keeping these considerations in mind, the offer they selected as the most attractive was not the highest total dollar amount, but was subject-free. Why was this offer the most attractive?
Because it reduced stress by providing a sense of closure - by accepting a subject-free offer my client was able to leave my office late that night knowing the home was sold.
The offer was also accompanied by a bank draft, which means that there is no backing out for the buyer. If they were to receive a subject-free offer but the cheque was to be delivered the next day (quite common with many offers), only to discover that the Buyer was nowhere to be found? Good luck tracking the buyer down and suing for damages in court.
The offer also had a lengthy closing which was appealing to my Sellers as it meant that would have time to find their next home.
Interestingly, the offer contained a clause that gave my Sellers the unilateral right to extend the closing date by up to two more months with 30 days notice to the Buyer.
Understanding the Sellers motivation and presenting the most attractive offer possible considering all aspects including price, timing, subjects and special clauses was the secret to winning in this particular situation, and those same considerations should underpin all serious offers in this market.
Strategies
Knowing what I do about this market, and carefully considering a Seller’s motivation means that when I present multiple offers on behalf of my Buyers they win! I employ the following strategy with my clients:
Let's try to figure out who the Seller is. Who are they? Are they financially motivated?
Let’s ask the other Agent tough questions to establish and qualify what the Seller’s desires and needs are. Considering timing, are their kids in school, or are they about to take a holiday? By discovering what closing dates will appeal to them most we can decide whether to offer flexibility in that closing date to make the sale more comfortable for them.
Let’s put down a respectable deposit so the Seller knows we are serious and properly financed for the purchase.
Let’s get the inspection done at the open house or before the offer due date so we can eliminate “subject to inspection” in our offer. This also allows the Buyer to consider their offer value and any financial factors if there are any repairs to factor in to the total cost of the purchase.
Let’s work with a trusted mortgage expert and someone who will be able to provide an excellent rate and the confidence that financing is secure, allowing us to eliminate “subject to financing” as a factor, strengthening our offer.
While there are other strategies that come into play in each situation, by keeping these five key considerations in mind you will be well positioned to make an attractive offer that is not only highly competitive but also one you are comfortable with.
Of the nine offers we received on the above case study, most of were lacking in the techniques outlined above. They all had gaps ... low deposits, unrealistically low price for the current market, unnecessary subjects that could have been eliminated with proper planning, weak closing dates and or no flexibility in the dates and administrative errors in preparing the offers such as missing signatures from the buyers for example (an offer means nothing if it isn't properly executed) and the list goes on.
The reality is that with today's real estate landscape and more so than ever before, you WILL NEED to enlist the services of an expert realtor to help navigate the intricacies of winning a home in this market. There is too much at stake and the market is far too competitive to be leaving your family's destiny on the hands of an amateur.
