THE BEST OFFER STRATEGY FOR BUYING IN THIS MARKET

Last week, we discussed 5 tactics that can help get your offer accepted in a highly competitive market. It takes team effort between client and Realtor to have an offer stand out when competing. The tactics we discussed can help you win when you are in competition with other buyers – which are the circumstances for the majority of buyers in our marketplace. Though not to underestimate the power of a good plan and solid execution, price is obviously a major consideration when it comes to winning at the offer table.

The most frequent question we see from buyers today is what do I have to pay to get this house?

It’s an interesting question on a number of levels.  

Not many months ago, it was easy to list a property at market value because the market was much more localized.  Buyers and sellers were from the same area, and understood the local dynamics in the marketplace. 

One of the largest growing cohorts in our local real estate market today is buyers coming from the GTA, which, as we know, is a more expensive market. These buyers often consider our real estate to be undervalued when compared to where they are from.  

So back to the million dollar question:

What do I have to pay to win in multiple offers?

Examining this dilemma shows there are a number of factors to consider. 

There is, of course, the list price of the property – which is really only relevant in terms of the number of buyers the property will attract.  In this strong seller’s market, list price barely registers as a floor for what a seller will accept.

Another factor is the price the buyer can financially afford – a rigid limit for many buyers, particularly first-time buyers, but of course this is not a hard stop for everyone in the marketplace.

A third factor to be considered is the price that the buyer would ideally like to pay. 

Of course, an offer is more than just price; normally a buyer will include terms and conditions in their offer.  Most of us have been educated to include conditions such as inspections and financing, yet in today’s market, the successful bids are often without conditions.  

As Realtors, we can’t tell a buyer what to do. We can, however, advise and educate our clients about the market conditions, and ensure they are making rational decisions and operating within their risk tolerance. The biggest part of the discussion with our clients is their reservation point. In other words, at what price do they become indifferent to that particular property, and walk away?

The key to successful negotiation is to understand the areas of overlap between the buyer’s and the seller’s zones of acceptability, and understanding each party's reservation point. 

The process of determining how best to advise our clients on what to offer starts with understanding BATNA.

BATNA is an acronym that stands for Best Alternative To a Negotiated Agreement. It is defined as the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made. In other words, a party’s BATNA is what a party’s alternative is if negotiations are unsuccessful. The term BATNA was originally used by Roger Fisher and William Ury in their 1981 book entitled “Getting to Yes: Negotiating Without Giving In.

(Corporate Finance Institute, 2021)

Helping our clients establish their thresholds and alternatives can help them avoid getting caught up in the emotion of the multiple offer process – i.e. overpaying, and taking on considerable risk.  Our buyers can feel comfortable knowing that they have made their decision from a rational place, and they are comfortable with the risk and the price being paid.

Having the BATNA discussion with buyers prior to doing an offer would, in the long run, help buyers be more competitive. Too often we see offers submitted that are at or below list price and include conditions, when multiple offers are expected and announced. (The legislation in Ontario requires listing agents to disclose the number of offers, but not the details, being presented prior to the scheduled presentation time.) At that point, those buyers (and more importantly, their agents) should know that they are not competitive, and are only pushing the zone of potential agreement further ahead for the seller’s benefit.  These extra uncompetitive offers signify increasing demand, regardless of their content.  This is the set up for the next listing to start the process at an even higher range. 

If more consumers and their Realtors understood the dynamics of negotiation, the current feeding frenzy would likely not be as severe as it is.  An effective Realtor with a strong understanding of negotiation will encourage their client to not place uncompetitive offers. 

In addition to the five tactics we shared last week and working with an educated Realtor, knowing your own limits can be one of the most useful tools for you to get into your dream home.

Like we often say, an educated consumer is a happier client.

THE PAST WEEK IN THE GUELPH REAL ESTATE MARKET

Last week in our local market, 56 homes sold. Same week last year, we saw 54 home sales.

The median home last week was 3 bedrooms, 3 bathrooms, and 1,345 square feet. This home sold in 7 days for a median sale price was $656,250 – that translates to $481/sqft (for comparison, last week’s median was $418/sqft: a much higher sale price but a significantly larger home). Sellers achieved 109% of the original list price.

Same week last year, the median home was around the same size: 3 beds, 2 baths and 1,450 square feet. In contrast, this home sold in 14 days for $625,500 – that’s $427/sqft and 100% of the original list price.

53 of the 56 homes sold last week went at or above list price (that’s 95%). In the same week last year, 29/54 of homes sold at or above list – which is 54%.

JANUARY MARKET REPORT

We’ve released our January 2021 Market Report. This comprehensive report breaks down sales activity in Guelph by home type and neighbourhood, plus detailed reports for Kitchener, Waterloo, Cambridge and our surrounding townships.

Click below to view and download the report, and as always, reach out to us if you have specific questions or you’d like to know more about a certain area.

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