If you’re buying a house in a strong sellers market like Guelph real estate, it can be overwhelming these days. Part of the challenge is understanding the pricing strategy taken on a home. The price may appear low compared to other home sales, but it may strategically set up that way. The seller may have elected to “hold offers”.
The Guelph real estate market has been on a steady rise since last June. This is when COVID-19 restrictions were lifted, especially in areas such as Grange Rd and Pineridge.
Area code 437, 416 and 905 buyers flocked to Guelph for it’s commutability. Also because you get more for your money as you move further west.
Holding offers isn’t new in Guelph. As far back as 2018 when Beth and Ryan first identified a supply and demand imbalance and a trend of GTA buyers to Guelph it was mentioned.
By December 2020, Beth and Ryan were quoted in articles like “Is Guelph one of the hottest real estate markets in Ontario?” as people began to take notice of the Royal City.
What is “holding offers”?
With pent up demand in a sellers market, sellers are taking the strategy of “holding offers”. This means that sellers have chosen to review any and all offers on a specific date and time (typically a one week period after listing). This is in anticipation that more than one person will submit an offer.
This competition, or “multiple offer” scenario creates a bidding war. It raises the price and sells to the highest bidder from those buying a house. Holding offers in area code 519 has become the norm. This is because more people are working from home with flexible work arrangements.
A note of caution for buyers in this scenario: make sure your agent knows market value. The last thing you want is to get caught up with emotion. Overpaying could cause issue with a home appraisal from your lender.
The one side bar in this strategy is the chance you could receive a bully offer (also known as a pre-emptive offer). You can read more about what a bully offer in real estate is, and the pros and cons here.
As a seller, there are pro’s and con’s of holding offers:
Holding offers works best when there is a strong supply and demand imbalance- that is, many buyers and very few sellers.
The market, looking at MLS listings may have an idea of a price range but the sale price could be much higher as buyers compete with each other for this particular home.
In Ontario, all bids are sealed- in that, buyers only know how many other offers there are. No specific details of price, closing date or conditions. This means that buyers are going in blind- and potentially paying significantly more for a house than the next best offer.
An Australian model has home prices done as an auction. You know the price of the best offer and you can choose to beat that or not. Over the years, many believe that Canada needs to move to this model. However, doing so may have an immediate cooling effect on the market and mortgages.
Cons of holding offers
Sellers with this strategy need to show value to buyers so that you create a frenzied mentality. As mentioned, buyers have access to many tools these days like HouseSigma, where they can look at past prices.
Listing your home at market value and holding offers is not likely to give you the sale price you’d want. This is because buyers don’t see value in competing for a home that’s already at market value.
As an example: in a strong sellers market, a home is worth $500,000. The seller decides to list at $450,000 and review offers after 7 days. The seller is hoping that the market will see value at $450,000, potentially bidding it up to over $500,000.
However, listing at $500,000 and holding offers may not work. It won’t provide buyers with the value they’re looking for and they may be reluctant to submit an offer. After all, they compete and don’t want to pay “too much”.
Unfortunately those who are likely getting into the market for the first time are feeling the pinch. Many millennials are realizing the lowest priced homes seem to be the most competitive.
Another major con of holding offers is the worst case scenario of not actually receiving any offers. Or, receiving offers that are less than desired. This strategy is often avoidable by listing at an appropriate price from the start.
Working with Guelph real estate agents that know the market is key here. Sometimes, other market forces could thwart the effectiveness of holding offers. This could be something simple such as a similar home coming on the market at the same time as yours.
The strategy of an “irrevocable period” when buying a house
The other pricing strategy that comes into play with MLS listings is implementing an “irrevocable period”. What does this mean? Irrevocable means “not retractable” by the buyer. As a result, we use this strategy as we coming out of a strong sellers market where holding offers is the norm.
Buyers may not want to compete for homes (buyers are frustrated and give up)
Let’s say a seller lists a home and requests that all offers come with a 48hr irrevocable. This means that the seller has asked the buyer to ensure their offer is valid for 48hrs from submission.
As an example, if you submit an offer at 9am Monday. The seller in this case wants it valid through 9am on Wednesday. This will ensure that all other interested buyers have an opportunity to come through. Often times, this irrevocable period results in multiple offers anyways.
Pro’s of an irrevocable period:
The benefit of an irrevocable period is that the seller isn’t hanging their hat on a specific offer day. The irrevocable allows them to respond to offers sooner or later than an offer day strategy. In this way it’s like a rolling version of holding offers but without the risk. Once the first offer is submitted, the “clock” starts.
Coming out of a strong sellers market where most sellers are holding offers, an irrevocable period is a welcome strategy. Buyers feel like “they have a chance” without competing.
The other pro to an irrevocable is that you are listing your home at, or even slightly above market value. This signals that you know the market and buyers looking at MLS listings with their Realtor will know this.
First time home buyers may find an irrevocable period to be a welcome relief to holding offers. As a result, you may find them more willing to submit an offer under this condition.
There are cons to an irrevocable period. As an example, let’s say someone buying a house gets a bully offer right after listing. The home receives less exposure because many buyers haven’t had a chance to see it.
This happens periodically, but even then Beth and Ryan have strategies to mitigate the impact of this situation.
Your listing day of the week is crucial here. Instead of listing a home on a Monday with 48hrs irrevocable, aim to list on a Thursday afternoon. This will maximize the weekend and allow for out of town buyers.
Beth and Ryan Waller are Guelph Realtors, you can reach them here with any listing related questions you may have.