This blog post comes courtesy of personal experience. I pride myself in getting, with a surprising degree of accuracy, what a property in Toronto is going to sell for when in a bid war. So losing out last week with a solid offer bit me especially hard. Sure, you could say that it was just because someone else’s client was willing to overpay. Still, I’m open to reflecting on what I could have done to help my client's story end differently. With more people losing bids than winning them these days, I thought that you may appreciate my delving into the makings of a bid and where most fail.
FAIL #1 NOT KNOWING WHAT FAIR MARKET VALUE IS
We did do this part right. Off the top, we were well aware that the ask price and the expected price were not the same number. In a robust seller’s market, no seller needs to accept less than market value and to discern what market value is, is a buyer’s responsibility. The seller’s list number usually has nothing to do with it. It is there for positioning within the market. The only way is to figure out fair market then, is to do the homework, by looking at what has sold, neighbouring, similar, and as recently as possible. When a home is listed and holding back offers, it is often priced 10% under market value, but your homework into the specifics will reveal how near or far market value your particular property actually is.
FAIL #2 NOT ACCEPTING THAT THERE IS NOTHING FAIR ABOUT THIS MARKET
But since we’re not in a fair market at all, there is a whole other level to a property’s valuation. There is nothing fair about sellers holding all the cards with multiple buyers on their knees. There is nothing fair about sellers saying 'hey by the way, none of the appliances work well anymore and I'm leaving them here for you to deal with and that hot water rental contract I haven’t bothered to look into is on you too.’ Coming to terms with the fact that fair market doesn't exist for the time being is essential in avoiding the cycle of 'thanks for the strong offer but we're working with someone else's' at the end of offer night. Accepting this current ugly reality is your only mother * option at this time, dear buyer.
How this ups the ante is that you have to factor this seller reality into your approach. In a market that is appreciating, sellers can have a vested interest in waiting. If there is no pressure at their end, they can have little to lose as they wait for their best buyer. So for them to sell to you today, you may have to overpay. Basing your number on recent comps is just that, a great base. Now add to that mix the reality of this sellers' market. As you consider the market value of a given property, also factor in how much more it will cost you to buy the equivalent next season.
If what you offer on today will be worth 10% more next year, is it worth it to you to pay the extra 10% now? Or, to put it this way, if your dollar can only get you 10% less next year, would it be worth it to you to overpay on this particular property now? It sometimes is, especially if the property is special enough to not likely be repeated. At a certain point, you'll need to decide when to be taken out of your 'death by house hunting' misery.
FAIL #3 NOT KNOWING THAT YOUR OFFER NUMBER IS NOT A NUMBER
This leads me to the final point which is perhaps the most important and without a doubt the most difficult to adhere to. I’ve witnessed buyers struggle with this final point often enough to appreciate it as a ‘can’t help ourselves’ human nature thing to do. Fixating on your offer number and adding a good luck story to it is not where your attention should be. So if you catch yourself thinking this way on offer day - please do your best to stop yourself. It is a big mistake to make a mistake so close to the finish line. Instead, I'd like to suggest this...
About the number you’re about to offer with? Don't pick one. Not yet. Yes, eventually you'll have to put one down, but don’t pick one and set it in stone just yet. That is not your task at hand. Instead of revelling in the personal poetry of your offer number, try to think instead of your offer as a range and really do the work on finessing what your cap really is. Your seller is looking for the highest possible number. Period. Your thoughts then should be on how you can afford and rationalize being the one to give it to them. Pay attention to the number that your research shows as strong, then put yourself to task. If you stretch further up, at what point do you feel nauseous? The property is more likely to sell for an uncomfortable number than for one that feels good to you. Could you live with it if it did? As uncomfortable as it feels now, could you see yourself being happy that you pushed today instead of next season?
Remaining fluid about your offer, takes a relaxed state that is near impossible for people to muster on offer day. I get that. But those who win on bid night are relaxed just enough to remain nimble and responsive. Give yourself some room to stretch financially in case you need to because you probably will. And this wiggle room in a seller’s market doesn’t tend to come from starting low, rather from stretching beyond what is comfortable. Keep in mind that the extra $50,000 you may have to choke up within the span of 5 minutes will cost you about $200 a month. Can you find an extra $200 a month somewhere? If you possibly can, you may want to ... on offer night.