Just when you thought real estate bidding wars were left behind in Guelph real estate in 2022, they seem to be back. Sort of.
This month for GuelphToday, our video talks about the current market. The blog below outlines pros and cons for buyers and sellers of real estate in regards to bidding wars.
What real estate bidding wars?
Simply put, a bidding war in real estate is when more than one buyer wants to buy a specific home and they are competing to buy it. Since details of each offer are not allowed to be disclosed, typically the highest priced offer buys the house.
Why is it happening again?
The simplest way to put it is that there are still not enough homes available to support the demand we are seeing from buyers. This is known as an imbalance in supply and demand or low inventory.
In Guelph, we typically see a rise in available homes during the peak spring market, where almost half the annual transactions take place between March- June. However, as you’ll see in the chart below, we’re on track to have lower options than 2022 as of April 15.
Does this mean every house is selling over the asking price?
Absolutely not. In fact, in many cases today where bidding wars exist, the sale price is below the asking price.
For a house to sell over the asking price, it typically needs to be priced below market value from the get-go. So, although it’s “selling over asking” it’s really just “selling at or slightly above actual market value”. Rarely does a home priced at or above market value sell for a premium, unless there are extreme circumstances for it.
Take student housing in Guelph as an example: in January 2023, there was an extreme rush for parents who were purchasing a home for their children to live in during university. This is due to an extreme shortage of rentals in Guelph and the University not guaranteeing residency.
Are we going to see another spring 2022?
Not in our opinion.
In 2022, buyers waived all conditions and provided a firm (no conditions) offer to buy the home. This means that if the seller agreed to what the buyer submitted and signed off, it was a legally binding, done deal.
This is still happening today, but a lot less. Often times, the best offer on a house still has conditions. And as mentioned before, the best price is often below the asking price.
So far in April 2023, 53% of listings have sold over the original asking price. And there has been 30% less sales so far in April 2023 vs April 2022. So it would make sense that less inventory means greater demand for existing houses.
What price bracket is the hottest in Guelph real estate?
26% of the houses selling over asking so far in April have been between $600K- $900K. If you’re in the market in this price range, either buying or selling, you need to be prepared.
Below, we give a few tips for buying or selling in a market with multiple offers.
Selling strategies in multiple offers market
First, let’s clarify that “multiple offers” or “ real estate bidding wars” on a house you’re selling doesn’t necessarily mean it’s a fantastic outcome for sellers. Ultimately, “the market” (buyers in the market) determine what market value is for your home which may be more or less than you hope for.
That being said, there are two main strategies sellers use when putting up a home for sale:
Underprice vs market and auction the home
In this scenario, the seller elects to list their home BELOW market value and review any offers in due time (typically 5- 7 days after listing). This allows the public to come through the home and offer on it.
Benefits to this strategy:
- Can result in a quick sale, reducing need to keep house clean and tidy for extended periods
- Ideal when you need a specific closing date as buyers strive to meet this to make their offer attractive
- May result in a firm, no conditions sale
- Buyers may get competitive and drive up the price beyond market value
- Works better on entry level homes
Risks to this strategy:
- You do not price low enough to attract buyers/ multiple offers
- You may not get the outcome (price) you desire and a plan B is required
- You may not receive any offers as buyers don’t see value
- Not overly effective on higher end homes as there is a smaller buyer pool
Price slightly above market value and review offers anytime
In this scenario, the seller elects to list their home AT OR SLIGHTLY ABOVE market value and review offers anytime. This is more of the traditional way to sell a home.
Benefits to this strategy:
- Can take longer to get an offer, especially on higher priced homes
- Ideal when the seller doesn’t have a specific closing date requirement and has time
- Allows the seller to be in control of the price vs holding offers and the unknown
Risks to this strategy:
- Often results in a conditional sale that ties up the house for weeks depending on the condition
- Rarely get over the asking price
- May require 1-2 price reductions before the market agrees with the price
- Seller has to maintain the house in “showing ready” condition until a sale happens
Buyers strategies for multiple offers
In the end, it’s simple: Reduce conditions where ever possible. However- and we want to make this clear- buyers need to do what’s right for them and their risk tolerance.
We’ll always tell you the pros and cons of removing conditions- but our advice is just that. Advice. One of the reason we help so many buyers get homes is because we are strategic in real estate bidding wars.
But advice and action are different- we want our clients to what is right for them. If removing conditions is not a risk they want to take, we respect that!
Sellers want a “firm sale” (no conditions) offer in most cases . In fact, sellers will often accept a lesser sale price that is firm versus a higher priced sale that has conditions. From a sellers perspective, conditions equate to risk and unknown.
Luckily for buyers, mitigating conditions can be done if your Guelph real estate agents are savvy enough to be creative.
Realtors with relationships with mortgage brokers can help you navigate a financing condition to ensure that you’re competitive, but not at risk.
A financing condition is typically two parts: 1/ to ensure the buyer is qualified to purchase a home and determine what budget they have and 2/ to ensure that the house appraises for the value paid for it via a 3rd party home appraisal.
Home inspection condition
Sellers really don’t like this one, because they can’t control what a home inspector finds at the house.
And even then, what a home inspector or seller believe is a minor imperfection could be a deal breaker for a buyer. The way conditions are written, a buyer can walk away without penalty from any condition for any reason as a result of a home inspection.
In a situation where a seller is holding offers and but you really want a home inspection? Often times a pre-offer inspection can be done so that you can get an inspection done. The benefit is then that your offer doesn’t need this condition.
The downside would be that you’re out the cost of a home inspection ($600-ish) if you don’t get the house on offer day.
Sale of property condition
Buyers who don’t want to risk owning two homes at the same time may choose to include a sale of property (SOP) condition. This should be used as a last resort, especially when competing. Having an SOP condition on multiple offers is almost a guarantee that you won’t be the chosen offer when real estate bidding wars happen. Why?
If a seller accepts a SOP condition, it means they are agreeing to allow the buyer time to sell their house (usually 30 days) and cannot entertain other buyers during that time (unless an escape clause is in play). In the event the buyer can’t sell their home, they simply walk away without penalty after the 30 days, or renegotiate the Agreement of Purchase and Sale.
As a buyer if you must have a SOP condition, you do have other options: looking at homes that have been on the market a little longer where the seller may be open to a SOP condition. Or, sell before you buy with a long closing date.
There is always risk in real estate bidding wars
In the end, there is risk and reward in both scenarios during real estate bidding wars. There is rarely a situation where it becomes a stress free proposition to buy and sell a home. According to VeryWellMind, moving is one of the most stressful life situations.
We can help you!
We’re Guelph real estate agents who do this for a living and we’ve helped many buyers and sellers navigate the process of moving, as well as real estate bidding wars. Just give us a call and we’re happy to chat!