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Making sense of multiple offers in a low inventory market

Lindsay Smith

By Lindsay Smith/Columnist

We met with a client this week looking at downsizing. They live in a home that really is suited for a large family, and we started the discussion about what, where, and when. One of the interesting questions they asked was about a home they saw on realtor.ca. He mentioned the area and before he could describe it, I knew exactly which home he was going to mention. We had a discussion around how some homes are listed to encourage “multiple offers.” My sense was that this home would sell for more than $100,000 over the price they were asking (I was low by $30,000). A quick look revealed that in Oshawa, 69 per cent of all homes sold in the past week, sold for full price or for more than asking price. This is an expected result when inventory is low, and buyer demands for property are high. You might ask, “If something sells for $100,000 or $150,000 more than asking, was it a mistake, or a technique used to create an environment where bidders compete?”

Oshawa does not have enough homes for sale. We had 200 detached homes for sale last month, June 2020, and in June 2019, we had 461 homes for sale. Not only that, but we sold more homes last month than we did in June 2019.

The conversation we had about the home our client saw that appeared to be a “steal” was how to go about determining what the realistic price would be once a sold sign is placed on the property. It was easy to determine the value range using homes that have sold in the area along with local knowledge and experience. This is a conversation we are having with many of our clients today.

When homes are listed dramatically under what they sell for, buyers shake their heads, wondering several things:

1) What is the “true” fair market value of the home that is listed for sale?

2) When a home is listed at or around market value, are the expectations of the seller thousands above the asking price?

Hence the confusion.

A recent sale in Oshawa would be a good example to understand a common-sense approach when determining market value. (Remember how inaccurate my crystal ball has been from previous columns.) A semi-detached home was listed below $400,000 and sold for $540,000. If I was in a position where a buyer I was working with was interested in the home, my first thought would be to see what the average semi was selling for in Oshawa. In June 2020, the average selling price for a semi was $502,000. Within a few minutes we know that the asking price was more than $100,000 under what has been selling. The next piece of the puzzle is to see what has sold in the neighborhood over the past 30 days. In this case, there were two similar homes sold over $510,000. Now we know that the home listed below $400,000 is most likely worth above this amount.

We now have a bit of a target range that the home “should” fall into when the seller looks at offers. This gives the buyer a bit of a guideline. However, from here it is a mix of buyer needs, wants, the current market volatility, and a bit of luck. Sometimes, it is like playing “pin the tail on the donkey.”

One other occurrence I am seeing on a regular basis is when a property hits the market at what looks like a price dramatically below other neighbourhood sales. After a week or so, it is taken off the market, with the seller and/or agent determining any offers that have been submitted do not meet expectations. The home is then relisted at a price closer to what other homes have sold for in the area. Again, more confusion in the mind of any potential buyers who see this “up and down” activity.

Fair market value is defined as: the price a property will achieve after being on the open market and with a buyer and seller negotiating without any duress.  In other words, a property is placed on the market, attracts a buyer and the negotiation arrives at a price they both agree upon, with a happy ending for both. I have noticed market value is a range not a static number. What I mean by that is a home that fits every need of a particular buyer is worth more than the same house is worth to a buyer who feels the home needs expensive work to match their needs and wants.

My advice for buyers when buying in a market such as we have today is to work with an experienced sales representative – one experienced with our local market and negotiating in competing situations. For sellers, find an agent who knows how to price a property to maximize the final selling price. This is a market where seasoned professionals end up with happy clients.

If you have any questions regarding the information in this column, or if you see a real estate emergency on the horizon, I can be reached at lindsay@buyselllove.ca.

Lindsay Smith Broker

Keller Williams Energy Brokerage

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