5 FACTORS SELLERS SHOULD CONSIDER WHEN ACCEPTING AN OFFER
Most people would think that being a seller in this real estate market is like winning the lottery.
Pick a Realtor – any one will do, right? Throw a sign on the lawn, take a few photos, put it on to MLS, and set a date for buyers to line up and pay more than the outrageous list price you’ve already set.
Like shooting fish in a barrel!
In reality, it’s not quite that simple. And this may shock you – it’s not all about the money.
The process of accepting an offer starts well before the offer presentations – and for an educated seller, it starts with choosing the right realtor for the job. The task of selling a home is straightforward and is very much process driven. The challenging task lies in managing expectations and emotions.
Emotions are the key reason why most people that sell privately tend not to get full value for their home. In this market, it’s tempting to use a For Sale By Owner service – but that's a blog post for another day.
A smart home seller will start their selling journey by ‘interviewing’ Realtors, to understand their strategies for not only marketing your home, but making sure the process is safe and relatively low stress. Plus, you’re trusting this person with your greatest asset, and you’ll also be spending a lot fo time with them, so part of the consideration is is this person a good fit? Realtors will, in turn, be trying to understand the seller’s needs and expectations – beside buckets of money.
While an incredible sellers market like we have now makes it difficult for sellers and agents to screw up, without the proper plan and strategy, there is the opportunity to leave a lot of value on the table by the selling side.
5 FACTORS SELLERS SHOULD CONSIDER WHEN ACCEPTING AN OFFER
1) CONDITIONS
In this seller’s market, having conditions in an offer is usually a non-starter. I am amazed at how many offers still come in that are conditional upon arranging insurance or financing. These are issues that a good buyer agent has insisted the buyer address well in advance of placing offers.
When we’re dealing with multiple offers, agents that submit conditional offers are not helping their buyer clients. In fact, what they are doing is really helping drive the price even higher by giving the other competing buyers the perception that the competition is more intense than it really is. The seller then leverages those conditional offers against the remaining offers to get even more favourable terms.
2) APPRAISALS
When the dust settles and the seller has reviewed the pile of offers in front of them, the temptation is to focus solely on price, and take the highest offer. In most situations, the highest offer will win the day. However, a smart seller and their equally smart Realtor will do a bit more digging to ensure that the buyer bidding the big bucks will have sufficient financial clout and downpayment to complete the deal – even if the appraisal comes up short of the purchase price.
Conventional financing means banks will lend up to 80% of the appraised value, not the purchase price. In this competitive market, we are starting to see appraised values falling significantly short of the purchase price. The scary thing is that the banks usually wait until a week or two before closing before calling for an appraisal to confirm the value of their security. If the appraisal is below the purchase price, the buyer is expected to bring more money to the table to bridge the gap between purchase price and appraisal – i.e. if the appraisal is $100K short of the purchase price, the buyer must come up with that cash by the closing date. As a seller, you don’t want to get that call a few days before closing, saying the buyer can’t close because the appraised value came in low. Smart agents look beyond the purchase price and direct detailed questions to the buyer agent to ensure the buyer has the resources to cover the difference, just in case.
3) DEPOSIT
What happens if you accept an incredible offer, and then the deposit cheque fails to show up? Perhaps the buyer fears they have overpaid, or they’re unsure if they should have placed an offer without conditions, or maybe it all happened so fast that they’re not even sure if this house is “the one”. If your Realtor is looking out for you, they will make sure any offers being considered are accompanied by deposits or proof of deposits. I’m constantly amazed with the number of offers that fall apart within 48 hours because the deposit cheque never materialized.
In a small market like Guelph, one of the most valuable assets for Realtors is their reputation. It’s really hard for a bad agent to hide in our market. The problem is the elephant next door. While the local sellers salivate at the thought of the Toronto buyers and their fat wallets, they don’t often see or understand that some of the less scrupulous players (agents and buyers) will often place 2 or 3 offers at the same time. They are, after all, trying to be efficient, and they certainly don’t want to be running back and forth more than they have to. If they “win” their first choice, they’ll walk away from the other offers – and by not delivering a deposit cheque, have lost nothing. They also know that the odds that some of these spurned sellers will sue them for breach of contract is slim to none – plus, those sellers are going to be preoccupied trying to get a new deal in place. Note that this is obviously not ethical behaviour, and the Real Estate Council of Ontario (RECO) will take any Realtor participating in such schemes to task – but only if it is reported, of course.
4) EMOTIONS
The residential real estate market is one of the few economic markets that is vastly influenced by emotions. Let’s face it, the commodity market and the stock market are rarely influenced by memories or stories.
Now, the family selling Grandma’s house, full of fond memories, is trying to choose between selling to an investor who is buying the house to jam it full of students, versus the young couple scraping together every dollar to get into the market, and have included a heartfelt letter to the sellers talking about growing a family and a new beginning for Grandma’s home. Their offer is $10K below the investor’s offer, and they get the deal!
This is something we do see happening, even in our current market. Helping sellers manage their emotions is an important part of the Realtor’s job, and why choosing the right Realtor and communicating your needs to them is crucial. Some sellers may prioritize obtaining the greatest return on investment, or they need the deal to happen quickly and with certainty – they’re likely looking for a Realtor who can help them separate their emotions from the process and get the deal done. In other cases, sellers need a Realtor who can help them achieve their real estate goals, and at the same time, be compassionate to their emotional attachment to a home. Neither is right or wrong, but both scenarios will benefit greatly from working with the right Realtor.
5) THE MONEY
It’s not always about the money, and yet it is all about the money. At the end of the day, if the seller’s agent has done their job effectively, the winning bid will be a combination of the most money, the least amount of risk to the seller, and the least amount of hassle.
Top buyers’s agents know this, and are able to sell their side of the deal by showing how low risk their clients, and making sure there’s just enough money on the table.
Good agents know how to read the market and help the seller set the stage to get the deal possible. They know to ask the pointed questions and to dig for all the details to minimize the risk to the seller if the deal runs into issues. Too often, inexperienced agents will get caught up in the emotion of the deal and overlook the fine details that can make or break it.
The interesting thing is that a lot of sellers will focus on commission rate or how high of a list price an agent proposes, rather than focus on the strategy and plan to achieve the desired outcome. Selling a home doesn’t require an engineering degree. It does take a solid understanding of human behaviour and psychology, because sometimes we don’t always act logically when it comes to these large, personal assets.
We’ve said this before and we’ll say it again: the first step in a successful real estate transaction, whether you’re buying or selling, is finding the right Realtor to work with. If you’re buying new couch, an appliance or a pair of shoes, the internet has enabled consumers to do the research themselves and come to a decision before they ever interact with a salesperson. In reaction to the plethora of online home search sites, some folks prefer to do the research and planning themselves, and only reach out to a Realtor once they’re ready to make the transaction happen. An educated and empowered consumer will spend part of that research period deciding who they are going to work with, because they understand that their Realtor is more than just a formality, a ticket to the MLS system. Your Realtor should understand your needs and your priorities, so that they can actively work in your favourite from day one to closing day.
Learn more about the KW Home Group Realty Journey
SIGN UP FOR SALES REPORTS
Not a subscriber? Sign up for our weekly blog and receive up-to-date information on local market conditions, plus receive exclusive reports with each week’s homes sales & sales price, for all of Guelph’s neighbourhoods and nearby cities.
