In my continuing series, First-Time-Buyer Fridays, I answer a common question from a first-time buyer. If you have a question to submit, first-time-buyer or experienced investor, put one in the comments below, or fire me an e-mail at Tim@TimAyres.ca.
Q. I had my REALTOR® prepare an offer on the perfect house yesterday, but we lost out because there were competing offers. What can you tell me about how this works?
A. It can be so frustrating, especially as a first time buyer with limited finances, to find the right home for your needs only to lose it to another buyer in competing offers, sometimes called a bidding war.
With record low interest rates and falling prices, it’s much more affordable these days to buy a house than in recent years. Not surprisingly, many first time buyers like yourselves are stepping into the market, after having been sidelined by high prices and interest rates. There are many reports of multiple offers happening, especially with lower-priced, entry-level properties.
Typically, if you decide to offer on a property, your REALTOR® will inform the listing agent of your intention to write one and request the title and property disclosure statement. At this time, the listing REALTOR® will also inform your agent if there are any other competing offers.
If there are no competing offers, then your offer is presented to the seller of the house you want to by either by your agent or by the seller’s agent. The offer is either accepted (great), countered (not as great), or rejected (booo!).
If there is a competing offer, this changes the game plan considerably. You very likely will not see a counter-offer, so you need to decide with the help of your REALTOR® what your best possible offer will be. Often, this means going over the asking price, especially if the property is new on the market.
However, you should keep in mind, that price isn’t everything, and making it easier for a seller to accept your offer will also help your position. If the offers are very close in price, the one with the easiest conditions could win, even if it’s a few thousand dollars less. Keeping your offer free of unusual conditions (like parental approval) and keeping the conditions short (no more than 5 business days) could bump your offer into first position.
One thing a first-time buyer has going for him or her is that there is no current property to sell. A subject-to-sale offer has almost no chance of acceptance in a multiple-offers situation.
When I present multiple offers to sellers, I usually present them in the order in which they were received, taking notes along the way. Once all offers have been presented, we go through the notes, comparing one offer with the other(s), and the seller decides which one to go with. Again, price isn’t everything, and I have had sellers accept a few thousand dollars less for an offer that just “felt right” to them. That is one of the most fascinating things about residential real estate – the emotional connection a seller has to his or her home when selling bears largely on their decision-making process.
If you are unsuccessful in getting the deal on the property, ask your REALTOR® if he or she can arrange to have your offer in backup position. This way, your offer is automatically accepted if the first one collapses.
I love helping first-time buyers get into their first homes – nothing is more rewarding than handing over the keys to my first time clients. I provide guidance and assistance every step of the way and beyond, all at no cost. If you have any questions, please give me a call any time at 250-885-0512, e-mail me at Tim@TimAyres.ca or fill in my contact form. Connect with me on Twitter at Twitter.com/TimAyres.
–Tim Ayres – Sooke Real Estate Professional
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This is great advice, especially from somebody on the experienced listing side. I know it can be frustrating for first-time buyers (particularly if their agent doesn’t appropriately educate them) when so much hope and excitement goes into an offer, only to get rejected, and then to wonder why their agent didn’t “fight for them” or something. Arranging a back-up offer is not something I am very familiar with but would bet many other agents would like to know more about in order to better serve their clients.
Katie
http://mportlandrealestate.com
This might be a very dumb basic question but please bare with me since I am first time buyer. I was told by my REALTOR that there was bidding war and that me and one other bidder were the same price. I didn’t go to these meetings and it happened very quickly in the span of a few hrs to close. The question I have is how do I know that there were multiple offers and that these numbers can be trusted? I did sign the REALTOR ethic/code of conduct site and the person is from a reputed firm but does it happen where the agents get together and have the buyer inflate their price slightly to make better commission. Can you ask for a history of the bidding to see what offers were put in after the deal is closed?
Hi Asha,
Thanks for reading, and thanks for leaving a comment. That is a very good question and certainly comes up a lot.
Unfortunately, the short answer is that you don’t know if there were multiple offers except when your agent tells you so. The seller’s agent has a duty to protect the seller’s negotiating position, and thus cannot disclose to the buyer or the buyer’s agent the status or amount of the other offer. If your agent knew the amount of another buyer’s offer, then he or she is fortunate to have discovered that information.
This underscores why it is important to work with a REALTOR® whom you trust completely. Get referrals from friends or family, and ask the hard questions – if the agent is any good, he or she won’t mind being interviewed.
But to be fair, the difference in commission from multiple offers is minimal – for example, from what I charge, a $20,000 difference in price is only $300 difference in commission. I doubt most agents would risk the trouble they could get into (license suspension, fines, perhaps even price-fixing/anti-competitive issues!) for a couple hundred dollars more.
I suppose you could ask to see other offers after the deal has closed, but they may not be revealed to you due to privacy concerns.
Thanks again for reading, and feel free to e-mail me any time with other questions!
Tim
Thanks a lot for such a comprehensive reply. It really puts my mind to ease. I truly trust the REALTOR just because the person who recommended her is someone who I trust. Also once I started talking it was very professional and it just clicked. Thanks for that commission information.I did ask the REALTOR and they did mention that it wouldn’t be disclosed much like if a house is sold at an aggressive price what the true motivation of the seller is.