Once rare in our area, multiple offers, often above asking price, are becoming more common, leading clients to ask: “If I receive a full price offer, do I have to accept it?”
In short, the answer is no. The fine print on the listing sheet states that “This is not an offer or promise to sell that could bind the seller to the buyer, but an invitation to submit such offers or promises.” The seller can even counter a full price offer and ask for more money. In seller’s market, the seller has the advantage and can ask for whatever price they want.
Recently, we’ve been seeing some brokers and sellers listing properties below market value to encourage multiple offer situations and prompt bidding wars. This practice is unethical and discouraged by the real estate board.
I advise my clients to price their home at their bottom line sale price. I conduct a thorough competitive market analysis and suggest a listing price that will generate strong interest and attract financially qualified buyers. The risk with setting the listing price below market value is that buyers who are qualified at a low price range will visit and present offers when the owner knows they aren’t going to sell at that price, wasting the buyer’s time, the seller’s time and the broker’s time.
Pricing is a balancing act and the real estate landscape has changed significantly in our area over the last year and a half. Previously, brokers would list properties slightly above the market value, expecting prospective buyers to present opening offers slightly below market value. Negotiations would then take place through counter offers until a mutually agreeable price was reached. It wasn’t unusually to see as many as 7 counter offers. These days, counter offers are rare. Multiple offer situations are now the norm, with prospective buyers offering their best offer on the first offer. If the seller were to counter at a higher price, the buyers would likely walk away.
Overbidding
Another trend we’re seeing is overbidding on an offer to purchase. Buyers are anxious to do whatever they can to have their offer accepted amidst all the competition. The downside to overbidding that buyer and their brokers need to be aware of is that they may not get financing. Banks require a property evaluation before they agree to financing. If the bank evaluator appraises the property below the selling price, they can ask for a larger down payment from the buyer or only provide a mortgage for their evaluated price, which can be a problem for prospective buyers who are already pushing the limits of their budgets with their offers.
High ratio mortgages, between 5% and 19% down, can appear less desirable on an offer but are worth considering if the selling price is well above market value. The CMHC, which guarantees these mortgages, is less likely to send an evaluator to appraise the property’s value, so an offer above market value is less problematic in terms of financing.
Should you take the highest offer?
In my opinion, conditions can be more important than price in an offer. We’re increasingly seeing buyers making huge offers, only to ask for significant price reductions after the building inspection. I encourage my clients to carry out pre-listing building inspections which they can show to buyers before they make an offer, so that there are no surprises and no inflated price reduction requests.
So back to the original question, “do I have to sell to the highest bidder?” You are absolutely not bound to accept the highest offer. You can look at other conditions in the offer, like source of funds and building inspections, when making your decision. Note, however, that you’ve signed a contract with your real estate broker. Clause 7.1 (2) in the brokerage contract states that, if your broker brings you an offer that meets all the criteria you set out (price, dates, inclusions, exclusions) and you refuse that offer, they can demand to be compensated. I have yet to see a broker exercise this clause, but as the seller, you do need to keep in mind that it is a possibility.
If you have questions about pricing your home for sale, please feel free to contact us. We’d be happy to discuss the best strategy for you.
