Buying Your First Home, Part 2: Making An Offer They Can’t Refuse

You found a home you love and want to put in an offer to buy it. What’s next?

Did you know that currently in Guelph, K-W, and Cambridge area, 50% of listings are sold through multiple offers—which means for the other half of purchases, people are not competing against multiple offers? It’s good to know how your buying strategy for each approach is different.

ONE-TIME OFFERS

First, let’s look at listings that have been on the market for a while (more than 14 days) and the listing agent is taking offers as soon as them come in. How the offer to purchase is written is just as important as the offering price.

After my clients have chosen a property they want, I do a comparative market analysis (CMA). I look at similar properties that have sold in the area within the last 3-6 months and we review these properties together. Then we decide collaboratively on the price we will offer.

Now for the offer-writing part. There are three typical conditions that a buyer might include in an offer to allow time for them to do their due diligence before they commit to the property. You generally get 5 business days to fulfill these conditions. The three typical conditions are:

1. Financing: In an earlier blog, I wrote that it’s a good idea to be preapproved for a mortgage before we start looking at homes. However, after we’ve found a home, we need to get full mortgage (financing) approval to be sure that the proposed home is suitable for your financial situation.

2. Home inspection: Unless you have a background in contracting or have a relative who does and can look at a property to look for defects, such as dampness, aging roof, mould in the attic, or other deficiencies, I recommend you hire a home inspector. The cost is between $450 - $550 depending on the size of the house. If there is a fireplace or wood stove, it’s also prudent to have a WETT (Wood Energy Technical Training) inspection, which is about another $150.

3. NOTE: You might not need a home inspection for a newer condominium where the condominium corporation is responsible for fixing major defects.

4. Status Package (or Condominium Docs): Speaking of condominiums, if the listing agent doesn’t have the Status Package for the condominium you want to buy, then reviewing these documents should be a condition of accepting the offer. The Status Package describes the rules of the condo complex, its financial health, and various legal requirements. This condition can take a little longer than 5 days—typically, it takes up to 10 days for the property manager to produce the package and another 5 business days for our lawyer to review the documents.

MULTIPLE OFFERS

When a listing is set up to receive multiple offers, it can be done in one of two ways:

1. A date and time is set and all offers are reviewed at the same time, OR

2. After the first offer is submitted, there’s a 48-hour window in which the selling agent notifies every agent that has shown the property that an offer has been received and invites them to submit an offer for their clients. Usually, one or two other buyers decide to make an offer.

Generally, you have about five days after a property is first listed to do your due diligence before multiple offers are reviewed. Therefore, the more you delay in viewing a property after it’s listed, the shorter the time you might have to do your homework before placing an offer.

The key to winning in any multiple-offer situation is to go in with as few conditions as you are comfortable with or, ideally, no conditions at all. Here’s how I work with my clients to address any issues that might help them eliminate conditions:

1. Financing: When clients find a property they like, I send the property listing to their mortgage person along with my estimation of what the property will sell for or what amount my clients are comfortable paying. The mortgage contact will then let us know if my clients can manage the financing and go without a financing condition, or can at least offer a short timeframe to finalize the financing (such as one business day).

2. Home Inspection: When my clients are eager to buy a property that is likely to attract multiple offers, I suggest they do a home inspection before we put the offer in. You can arrange for a mini-inspection that costs only $250 and will inspect the areas that are most likely to have expensive problems, such as  roof, heating, air conditioning, electrical, foundation, and attic.

3. Status Package for Condominiums: Ask the selling agent for the package and if they have, your lawyer can review it before offer day. If the agent doesn’t have the documents, all the offers will likely include a condition of Status Package review, so you’re safe to include it, too.

The key to figuring out what price to offer really comes down to the highest amount that you can pay and that makes sense for the value of the property. For example, you might be able to afford to pay $600,000 but if we determine the true value of the home is closer to $500,000, it might not be a practical investment to pay $100,000 more than the house is worth. I’ll look more at how I help clients determine a price in another blog. For the next blog, let’s look at what happens after your offer is accepted and you need to remove any conditions.