You’ve found the perfect home. You tell your real estate agent that you want to make an offer. It seems too good to be true. And then reality hits. The home you fell in love with has multiple offers.
Thoughts race through your mind. How could this have happened? How is it possible that other buyers fell in love with the same home you did? And what can you and your real estate agent do to make sure yours is the winning offer?
Multiple offers in the Greater Toronto Area real estate market never really went away. Sure, the situation of having more than one buyer bidding on a home quieted down a bit after the dip in the real estate market in the spring of 2017. But multiple offers have picked up again.
And now, with inventory at lows, and the number of buyers increasing, multiple offers have become a reality. As a home buyer, there are a few things you need to consider as you enter a multiple offer situation with your real estate agent, especially if you absolutely want to win the bidding war.
What Makes a Winning Offer
You’ve probably heard of many different tactics to winning a bidding war. Writing a personalized letter to the homeowners sharing with them why you love their home and why they should choose you. Shooting a quick video to express your admiration for the home… and why they should choose your offer. Going in with the highest and best price.
But there’s another tactic that, when combined with going in with the highest and best price, almost always guarantees the winning bid: buying a home with no conditions, otherwise known as a ‘firm offer.’
The Firm Offer
Typically, when a buyer makes an offer to purchase a home, and if they’re not competing with other buyers, they present an offer (through their real estate agent) that has conditions. Conditions include financing (the ability to secure a mortgage), inspection (making sure everything is okay with the home), and in the case of buying a condo, the review of a status certificate (to ensure the condo corporation and the unit are in good standing).
Coming in with a firm offer simply means you are not including any conditions on your offer. You’re buying firm — if the seller accepts your offer, you’ve pretty much bought the home.
This proposition is advantageous to sellers. It gives them confidence and peace of mind knowing that, if they accept your offer, their home is pretty much sold and all that has to happen is the completion of the transaction.
You can imagine in a competitive marketplace why home sellers would favour a firm offer, coupled with the highest price. A firm offer allows the seller to solidify their own plans of purchasing their next home, knowing that there are no contingencies that could affect the sale of their existing property. And if they’ve already purchased a home, accepting a firm offer at the best price almost guarantees their move.
The Risks of a Firm Offer
Coming in with a firm offer when purchasing a home has risks for the buyer. If you do not include conditions for financing, home inspection, and status certificate review (for condos), you can’t back out of the purchase without suffering grave consequences.
What happens if you don’t secure mortgage financing? What happens if you move in and discover there’s mold in the attic? What happens if you buy a condo and then realize that the condo corporation has slapped an assessment and now you owe $10,000?
Buying firm means you are assuming all of the risks of the home purchase. So don’t make the decision to go in with a firm offer lightly. You really need to discuss your options, and possible scenarios, with your real estate agent before making this decision. In addition to your real estate agent, you should also consult your lawyer to learn about the implications of a firm offer, and what could happen if you can’t proceed with the purchase.
For example, if you can’t push through with the purchase of the home (or condo), you could lose your entire deposit. In addition to losing your deposit, if the home seller incurs damages because they can’t make their move, or due to selling at a lower price, they could pursue the costs of these damages through litigation.
Is It Worth It?
During the last market peak, the only way to secure a home purchase on the buyer’s end, especially when there were 30-40 (and sometimes even more) offers, was to come in with a firm offer. Many buyers entering a multiple offer situation, who weren’t properly educated about the process and lacking the proper guidance, walked away disappointed after losing to winning offers that usually had a higher price and no conditions.
Buying a home firm is very risky. But it’s worth it — only if you understand the risks involved, comprehend what could happen if you can’t fulfill the purchase, and are fully committed to proceeding with your offer to purchase the home.
We’re weeks away from the start of the spring market in 2020, and already we’re seeing multiple offers happening throughout the Greater Toronto Area. When you’re up against 5, 10, 20, 30… or even more buyers, and if some buyers are coming in with no conditions, the only way to really win the bidding process is to come in with a firm offer at the best price.
How Do You Submit a Firm Offer?
Working with your real estate agent and your lawyer, strategize the price and the terms of your purchase agreement. Determine if you are able to exclude conditions and fully understand what it means. I don’t mean to sound like a broken record, but submitting a firm offer means you’ve pretty much bought the home, if the seller chooses your offer above all other buyers. You can’t back out… without incurring difficult repercussions.
A professional and knowledgeable real estate agent will always advise you to seek professional advice from your mortgage broker and your lawyer before preparing a firm offer. They will also thoroughly discuss with you the risks involved and everything you need to know to be prepared when it comes time to prepare your firm offer.
Introducing OREA’s Form 127
Prudent real estate professionals will not only exclude the conditions on your agreement of purchase and sale, but they will also document the fact that you’ve had the opportunity to seek legal and professional advice prior to proceeding with a firm offer. So don’t be surprised if your real estate agent asks you to initial and sign the Ontario Real Estate Association‘s Form 127.
Form 127, titled “Condition(s) In Offer – Acknowledgement,” is an acknowledgement made by you, as the home buyer, for the purchase of your home. Initialling this form indicates that you are aware and acknowledge the fact that you are either not including conditions in the offer, or are waiving conditions in the offer.
The difference between not including conditions, and waiving conditions, is quite simple. When you do not include a condition in the offer, the condition does not appear on the agreement of purchase and sale whatsoever. When you are waiving a condition in the offer, it means your real estate agent has inserted the condition, but you are ‘crossing it out’ (excluding/deleting the conditions) or ‘waiving’ the condition (by signing a waiver form).
The form includes the various conditions you may be excluding or waiving, such as a condition on financing, the sale of your property, arranging insurance, obtaining a home inspection, or other conditions (such as a status certificate review in the case of condo purchases).
In bold letters on form 127, it states, “I acknowledge it has been recommended that I obtain independent legal advice prior to signing the offer/waiver.” A professional real estate will not stop you from seeking legal advice. In fact, they will recommend it. Don’t take this lightly. You should seek legal advice before proceeding with a firm offer.
Protecting Your Best Interest
Signing form 127 means your real estate agent has done their job in advising you about the risks of not including conditions. But how do you protect your best interest when presenting a firm offer?
The only way is to truly understand the level of due diligence you (with the help of your real estate agent) need to perform before presenting your firm offer. Make sure you are able to secure the mortgage financing needed to purchase the home. See if the seller has done a pre-listing home inspection so you can review and discover any potential issues with the condition of the home. Perform your own home inspection prior to entering a multiple offer presentation scenario. For condo buyers, ask the seller’s real estate agent if they have ordered the status certificate and make sure you review it with your lawyer.
There are many situations where buyers have succeeded with presenting a firm offer and have mitigated their risk of purchasing property. In these cases, they worked with their real estate agent, lawyer, mortgage broker, home inspector, and other professionals to fully understand what it will mean for them when they commit to buying a home with a firm offer.
As you enter the market this year, make sure you understand what a firm offer means if you’re in a situation where more than one buyer is bidding for a home. You could be one firm offer away from owning your dream home — but make sure you understand the journey you’re about to take when you sign that firm offer.