As we enter the spring market on the start of what seems to be a strong upswing in our market, we are once again seeing more multiple offers on property. Surprised aren’t you?
It is about inventory, numbers and affordability.
Considering the mortgage rule changes that came into effect in the fall of 2016 and the pricing in our market, it isn’t surprising in the starter and mid size home detached home segment especially.
The mortgage rule changes reduced the buying power of anyone utilizing a mortgage with less than 20% of purchase price for a down payment. Where previously folks utilized the bank rate for their mortgage for qualifying (example 2.79%), they now must qualify using a benchmark rate (4.64%) set by the Bank of Canada. This can reduce buying power up to 20% for some folks.
With most detached homes in our market starting in the $400,000s and quickly moving up from there, there is a large segment of folks looking in the pricing zone. When you line up typical incomes, mortgage approval ratings based on those incomes and the price of typical detached homes in our city, it is no small surprise that more folks are being squished into a smaller pricing zone than previously.
More buyers + less inventory = Multiple Offers
How do you stand out when putting forth an offer in competition?
As a seller you are looking for security of the transaction. Let us say Mr and Mrs Seller have a home for sale in NW Calgary for $450,000. It is in great shape, in a great community and presents well. After going on market they receive 4 offers. They are all somewhat similar. How do Mr and Mrs Seller choose? Their home is going to be conditionally sold for over a week waiting out someone completing their financing and completing a home inspection. Is it a strong offer from a prepared buyer or a buyer on a whim that hasn’t done their due diligence?
The first place to review is financing. What is the amount each potential buyer is borrowing? It would seem someone with 5% down payment is in a stronger financial position than someone with a 20% down payment and more likely to complete their qualifications but is that true? What if they are all purchasing with a 5-10% down payment? As a seller’s realtor, my first question to each buyer’s realtor is if the buyers are pre-qualified to purchase. As a buyer it is your choice what you disclose. Do you think having a prepared letter confirming your preapproval from your lender could help you? I’d recommend having that in your back pocket. It might just be what wins the purchase when sellers are looking at 4 similar offers. Peace of mind can be worth a lot.
You may be tempted to simply exclude some conditions from your offer to win. I would highly discourage you from doing that. You never know what a home inspection could uncover on that ‘great deal’ or if your bank would withdraw a mortgage approval due to a unique history on a property. Win smart and be prepared instead. Having a great Realtor that knows how to negotiate a win helps too. Give me a call anytime. I am happy to answer your questions.
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