In today's real estate market, where buyers outnumber sellers, how are prices set and how are multiple offers handled by brokers? Also, why can't we know what they are? Finally, what are the reasons for increasing the offer and when will the balance be restored?
How is the initial sale price established?
Basically, the market value of a property must be evaluated by the real estate broker according to the comparables (type of residence, city, neighbourhood, etc.) sold in the last few weeks. He then presents the results of his evaluation to his seller client and advises him to determine the best price to put his property on the market. "For example, if I appraise a house at $500,000, I give my seller options by telling him that the best price would be $495,000 because it corresponds to the market value, but that he could list it at $510,000 or $520,000 to try to get more money. If they decide to list their home at $500,000, one buyer is interested in $505,000 and another buyer is interested in $515,000, and then the purchase closes at $515,000, the property values in the neighbourhood will increase accordingly," says Mario Lamirande, Royal LePage Au Sommet Chartered Real Estate Broker. It's what the buyer is willing to pay for a property that will determine the market value.
Confidentiality governed by law
When demand outstrips supply, market prices rise and fights over big money and limited terms ensue. "You can't go live under a palm tree in Quebec, so unfortunately, because of the housing crisis, people are caught in a vicious circle of overbidding, which is a real bummer because all offers are confidential until the date agreed upon to open them," explains Mario Lamirande. In fact, the law that applies to real estate brokerage says that the seller's broker must advise all parties of the number of promises to purchase received, without revealing their content. The buyer's broker is then required to inform his client each time there is a new offer, so that the latter can improve his proposal if he wishes. "It is in your interest to propose the highest possible price with which you are comfortable and possibly review certain conditions, because the price is not necessarily the seller's decision factor," Mario Lamirande continues.
For example, five bids are made on a property listed for sale at $500,000. They are all opened at the same time on the date and time agreed upon with the seller:
- Offer #1
500,000, the asking price, conditional on inspection - Offer #2
510,000, unconditional - Offer #3
515,000 conditional on sale of house - Offer #4
525,000, no inspection or financing required, with proof of funds - Offer #5
550,000 conditional on sale of home and inspection
The first three offers will be automatically eliminated, but the seller may hesitate between the last two and even lean towards the least expensive one since it does not include any conditions. The transaction can probably be completed more quickly and without having to wait for the results of the inspection or the approval of the financing.
Love at first sight, but a cool head
Pressure and disappointment are unfortunately the lot of many potential buyers at the moment. However, it is important to take a step back and evaluate how far you want to go to buy a property and to get advice from your real estate broker. Important sums of money are at stake, but so is your daily well-being or discomfort. If you already own a property, if you made a good deal on it by selling it, and if you like the residence you are looking for, if it is located in a pleasant area close to services and to your work, do not hesitate to improve your promise to purchase, especially if you plan to stay in the house for at least 10 years, because it should not lose value," explains Mario Lamirande. You can also improve the seller's terms by offering to put down a deposit if you are able to do so, or to take on some of the work listed in the seller's description."
Seller-buyer: when will the balance be achieved?
Mr. Lamirande answers that no one has a crystal ball and that, apart from the increase in interest rates which could cause a slowdown in price increases, nothing can be predicted. The pandemic has changed many things. For example, grandparents have moved to be closer to their grandchildren, families have moved out of the city to work remotely and live in the regions. People's lifestyle choices always influence the real estate market, and that is hard to predict.
Source : Article by Emmanuelle Mozayan-Verschaeve on the lapresse.ca on the 7th june of 2022
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