Holding offers: A strategy for buyers or sellers?

By Lindsay Smith/Columnist

Holding offers, offer presentation dates, bully offers and pre-emptive offers. This “new language” has come into our vocabulary to explain how the selling process operates in a market where inventory is at record lows.

From first glance it is easy to determine that a sales rep and a seller makes the decision to “hold offers” to drive the price higher than market value. Not being that green or naïve, I understand this is the motivation of some people, however, let’s look at a few reasons why this process might be of benefit to buyers.

Let’s start with defining what the words mean:

Holding offers, offer presentation dates – Placing a home on the market and setting a time/date that offers will be reviewed. (This can also be done by asking for a certain amount of time to review an offer once it is written by asking for a 24 to 72 hour “Irrevocable period,” asking for specific amount of hours to make a decision.)

Bully or pre-emptive offers – When a seller asks for a specific time to review offers, this is a buyer submitting an offer prior to the pre-determined date and time.

A good example illustrating why a seller may choose a pre-determined date would be a home we recently listed for sale. We placed a home on the market last week, holding offers for six days. Feeling that the home was priced around market value, we opted to hold offers to get as much traffic through the home as possible.

Over the weekend we had 47 buyers tour the property. Given how marketing real estate has changed over the past few years, and most dramatically in 2020 with so many new restrictions, this strategy allows time for more buyers to find properties that are newly listed for sale. This technique benefits both buyers and sellers.

Prior to the “stay at home” orders in March this year, we would typically start showings on a new property mid-week allowing buyers from out of the area to tour the home on the weekend either with their own sales reps or through open houses.

Open houses are discouraged currently, so implementing strategies to allow as many buyers access to homes for sale, allows out of town buyers time to tour the properties. Of the 47 buyers who toured the above property, buyers traveled from as far away as Norwood and Brampton to visit. This process would give an out of area buyer wishing to relocate to Oshawa an opportunity to find, tour and hopefully purchase a new home.

Setting a time to review offers is a direct result of working in a market where there is a lack of inventory or homes for sale for buyers to tour. At the end of September, Oshawa had 212 homes for sale. A year ago, that number was 437. This lack of inventory is causing changes in how we sell homes.

A quick snapshot in Oshawa shows that of the homes listed for sale in the past six days, 80 per cent of properties were holding offers.

Jump to Central Toronto where the inventory of condominiums has skyrocketed 61 per cent year over year, the same snapshot reveals a much different market. Experiencing such high inventory, only 17 per cent of condo owners are holding offers. In a market where inventory surpasses demand, buyers have time to move at a slower pace.

One of the methods that some sellers and sales reps use to sell in our market is a process where a property is listed dramatically under market value. The home ends up selling for, in some cases, as much as $100,000 over the asking price.

What this technique does, in many cases, is create unrealistic expectations from buyers hoping to buy in a price range they are qualified for only to find out the home sells for thousands more than asking.

A current example would be: the average price for a semi-detached home in Oshawa is $525,000. There are currently five semis listed below $400,000.

In the past 120 days there have been no semi-detached homes sold for below $400,000. I am certain you can decide what the technique being employed here looks like.

Until the inventory increases, I cannot see the current marketing strategies changing. If you are a buyer looking for a home today, it is best to deal with a full-time, experienced sales rep. Some of the techniques that a seasoned sales rep will utilize in a low inventory market will have taken years to learn to use successfully.

Experience is critical in any market, however, with COVID-19 changing how we do business, and in an inventory scarce market, experience can be the difference of being a buyer looking or a buyer choosing paint colors for a home they have purchased and can’t wait to re-decorate.

If you have any questions about buying in today’s market, or if you can see a real estate emergency on the horizon, I can be reached at lindsay@buyselllove.ca.

Lindsay Smith

Keller-Williams Energy Brokerage