11 February 2021

The process of listing your property for sale, not allowing any offers for a week (give or take), and then reviewing any and all competing offers at a specific time on a set date is what’s known as “holding offers” in the real estate world.  While there are many factors that can play into the relative strength of your offer in any given seller’s eyes, there are two that consistently rise to the top of the list: price and conditions.  

The highest price and the least amount of conditions (ie. financing, inspection, insurance, sale of buyer’s property, etc.) in your offer as a buyer is what will make the biggest impact on the likelihood of your offer being accepted.  Any offer that has no conditions is known as a “firm” offer and is considered to be the “creme de la creme” of offers when accompanied by a high offer price, as it signifies a “done deal” (no conditional period) should the sellers sign on the dotted line and accept it.  Many times we see anywhere from 5 to 50 offers submitted, all competing for one property.  None of the buyers know the contents of the other party’s offers; all they know is how many they’re up against.  Once the offer deadline hits, the lucky sellers have the opportunity to review all of the submitted offers and choose the best one to accept.

Pretty neat, right!  Well now that we have an understanding of how the process of holding offers works and what makes your offer stronger when competing, we can begin to understand it’s associated downfalls as this pricing strategy not only becomes widely adopted, but seemingly has become the golden standard for most new listings hitting the market in recent years.

Before I begin, I do want to share that I have indeed held offers in the past for some of my seller-clients with great results and would continue to do so in situations where it makes sense or when it is my seller’s wishes to do so until there is future legislation in place to effectively eliminate lowball pricing tactics and non-transparent offer date processes.  Unfortunately my efforts alone would go unnoticed in a market with thousands of agents.  

With that said, holding offers definitely does increase your chances of receiving an insanely high, above-market offer.  It also increases your chances of receiving a firm offer without conditions, which is especially beneficial to sellers living in older, dated homes  since they can avoid the buyer requiring a satisfactory home inspection report as a condition of the sale.  Holding offers does those two things very, very well and there is great benefit in it for sellers, I don’t disagree.

So what is my issue?

My issue with holding offers isn’t with respect to it’s merit, it’s in relation to the morals of the situation.  One party to a transaction should never hold all of the power and I feel as though there has been too far of a shift in power in one direction as a result of this pricing strategy.

I know you’re all probably thinking, “what the heck man…this is a Godsend!  You get to sell your listings quickly, you have super happy sellers, win-win.”  

Let’s not forget though, selling homes is only on side of the coin.

Let’s take a few moments to think about the other side of the coin.  Let’s have some empathy for the buyers..

It’s Misleading & Artificially Inflates Market Prices

Have you ever read a listing description that read, “Wow!  An over 1,500 sq. ft. detached home with 2-car garage in a great family neighbourhood for under 500k!!  Book your viewing today before it’s gone,” just to find out that the home which was listed at $499,900 was holding offers and actually ended up selling for $625,000 firm?  What do you think it would have sold for if 80% of the offers weren’t daydreamers thinking they could actually buy it for around 500k?

Many buyers don’t understand the immense value of having a dedicated buyer’s representative (realtor) working in your sole best interests.  For this reason, many buyers are simply searching online themselves, reaching out to listing agents directly to view the property, and then submitting lacklustre offers either through the listing agent, their lawyer, or an out-of-town agent who they know from their current city.

How does this happen?

Well let’s not forget, the main tactic with holding offers is that it’s a pricing strategy.  With high demand for all homes, but especially entry level detached, it means that there is already more buyers out there than there are listings for sale.  Now, say we purposely price a home way below market value to catch unsuspecting buyers’ attention who don’t have a dedicated & informed buyer’s rep to advise them on the realistic sale price of the home.  What do you think happens?  That’s right, even more demand builds for this specific listing at that price!

Humans are competitive by nature - the more offers that are submitted, the more the most serious bidders will offer in an attempt to be victorious.  It’s this concept of giving buyers false hope that the listing will sell for anywhere near the list price, thereby increasing the total number of offers submitted, that finally results in the most serious bidders offering more than the house is truly worth.  Listing agents are all too happy to accommodate your desire as an unrepresented buyer to put in an offer that has no chance at winning because they know that every additional offer that’s registered, whether good or bad, adds to the hype of how much the most serious buyers will think they need to offer to win.  When this starts happening daily, that’s when you start seeing the effect on property values that we have seen since 2017 when this pricing strategy largely came into effect.

If we want homes to be attainable for our youth, we need to stop listing homes that are clearly worth $600,000 for $499,900 and holding offers in hopes that someone gets caught up in the hype and offers $650,000.  This is important because when a house that’s only worth 600k sells for 650k, now the next seller in the area expects 650k for their home.  Homes should not rise in value 50k over night and sellers should be happy receiving fair market value for their home, not seeing buyers overpay.

Out-of-town Agents Don’t Know Our Market

Another big piece to the puzzle of why property values are increasing at such an alarming rate is the relationship between offer dates and out-of-town agents.  With an increasing amount of buyers coming from the GTA for more affordable housing, we are seeing more and more GTA agents trying to help clients purchase property in our city.  That may seem fine on the surface, but the reality is that most of these out-of-town agents know nothing about our city - the areas, why one street is worth more than another, the history of that home, etc.  Most haven’t even paid for access to our local MLS system to know what comparable homes in the area have sold for!

The amount of times I have had GTA realtors who want to offer on my listing, but don’t have access to our sales data, ask me over the phone, “so what do you think we should offer to be successful?” is astonishing to say the least.  This is the person you’re trusting with the biggest purchase of your lifetime, really??  

Don’t get me wrong, I respect the hustle, I appreciate the effort, but clients deserve COMPETENT service!  When your realtor’s expertise is in a totally different market with much higher prices, what we tend to see is that GTA realtors are accidentally causing their clients to overpay here on offer dates.  Realtors should be referring out business in areas that they can’t operate in competently and buyer’s should be demanding competent service - simple as that.  The difficult part is that out-of-town buyers don’t connect with local agents often enough to realize the difference between competent and incompetent service.  Winning your first offer isn’t a win when you’ve grossly overpaid.

We have seen offer dates with 10 offers where the property is listed at $749,900, 9/10 offers are from local agents between $800,000 - $850,000 (the property’s true market value is in that range) and then the 10th offer is from a GTA agent who offers $950,000.  Not only did their lack of local knowledge cost their client an unnecessary additional 100k, but they’ve possibly made the next home sale in the area artificially inflated due to that recent sale data too.  When this is perpetually occurring in our market, that’s how in a single year, once attainable homes are becoming unattainable, even for households with solid income.

Huge Barriers to Entry for First-time-homebuyers

Aside from interest rates being at historical lows, buying your first home is currently more difficult than ever.  More strict lending requirements for proving income (especially those who are self-employed), higher downpayment requirements, shorter amortization periods, not to mention needing to be approved based on the stress-tested bank rate vs actual market interest rates all play a role  Even though this legislation was implemented to look out for our best interests to avoid over-extending ourselves on our mortgage, the fact still remains that these stricter lending requirements result in the average first-time homebuyer being pre-approved for less.

With the same income now producing lower pre-approval amounts for buyers and properties selling for record amounts due to competition on offer dates, how long will it be until only the wealthy or those with significant help from their parents can afford to buy a first home at a reasonable age?

Furthermore, price is only one barrier to entry for first-time homebuyers, but let’s not forget about the other almost equally important consideration when crafting a winning bid - conditions!

Forced to Take Arguably Unfair Risks

Even if you are comfortable paying the cost of admission to seriously compete in a multiple offer situation, there is still the notion of due diligence to consider.  Those long, fancy conditions that we like to put in your offers aren’t just there to make it look professional, they actually cover your butt!  

When buying your first home, it’s very likely that the only safe way to purchase it with the amount of money you have saved is to include a financing condition.  It’s also realistic to want to ensure that your first home has been maintained well by means of obtaining a home inspection report.  These are important considerations for anyone buying a home, but you could understand how like anything in life, you would want to be extra cautious if it was your first time.

Well, between pushing your budget to it’s absolute limit to compete price wise and wanting the least amount of conditions in your offer to make it the most appealing to the sellers, buyers are forced to take what I would arguably call unfair risks.  We can try putting in a decent offer with a bunch of conditions, but eventually, after losing enough offers, you will hit a point where you just want to win.  So unless you only focus on properties that have been sitting on the market for a while for various reasons, you unfortunately need to start taking some calculated risks to win.

This is where it is crucial to have a realtor in your corner who cares about your well being and not just the transaction.  You need a realtor who can outline the risks, the benefits, the potential outcomes, seek advice from other professionals (mortgage broker, insurer, lawyers, zoning bylaw, etc.) to ensure that you can make an informed decision on your own with all of the facts in mind.  There are indeed creative solutions to these issues that a great realtor can suggest to mitigate risks while ensuring your offer can be as competitive as possible - pre-offer home inspections are one great example of that.  Regardless, the difficult reality that we still face is that when almost every property is holding offers to create a bidding war, buyers eventually have no other choice than to take some unnecessary risks.

Wouldn’t it be nice if we lived in a world where any time that you offered to buy a property, you were automatically granted the right to ensure you could actually finance it and inspect it with a professional home inspector?  I think so!

Fuels Unrealistic Seller Expectations

Okay, so maybe I have been focused a bit too much on having empathy for buyers.  What about the sellers best interests, right?  I agree, nothing feels better than locking down a listing, marketing the crap out of it, and securing my sellers an awesome offer!  Honestly, I love it.

I will say though, there is a certain threshold in any transaction where the joy becomes conflicted when the benefit of one party appears to strongly outweigh that of the other.  Seeing my clients happy, whether buyer or seller, is my number 1 goal.  It is worth remembering, however, that there are always two parties to a transaction.  I want to see my own client happy first and foremost, but a transaction really only feels good deep down when both parties are excited about the outcome.

To be brutally honest, in many ways I do feel that the pendulum has swung too far in the seller’s favour.  Increasingly often once a deal is accepted, we’re seeing ecstatic sellers and nervous buyers.  On one side we hear, “Wow I would have never imagined it would sell so quickly and for so much!”  And on the other side we hear, “I’m glad we finally won after so many losses, but I wonder if we overpaid and I really hope that we can get our financing sorted since we took a risk and came in firm without 100% assurances from our lender!”

It’s hit a point where sellers have come to expect 50 or 100k+ over asking.  They have come to expect no conditions in the offers.  If only 20k over asking with a financing condition is received, they’re actually disappointed sometimes!  This isn’t realistically or even historically how fair real estate transactions unfold.  Expecting what your home is worth is fair, expecting someone to pay more than that is not.  Expecting serious buyers is fair, expecting buyers to forfeit reasonable due diligence for the biggest purchase of their life is not.  At a certain point you do have to ask yourself, what’s fair to the other party in the transaction?  Do I truly believe that buyers should have to waive all rights to proper due diligence to be able to buy my home?  

It’s a tough scenario to put yourself in as a seller, yet an important one because even if you are lucky enough to have a property that sold for big bucks, that means that you will likely need to buy your next property still..

You Still Have to Buy Your Next Home!

Even though most sellers in this market will secure a home to buy before listing their home for sale, the reality is that when selling, you do still need to buy.  Therefore, everything that excites you about receiving multiple offers on your home to sell is what you will ultimately have to battle through when buying.  Maybe you received 50k more than you were expecting on your sale, but chances are you’ll need to spend 50k above what you think any given home is worth to win the one you want to buy.  So in the end, it’s not even like there is a net benefit to this crazy pricing strategy we’re putting everyone through.

Reviewing 20 offers is nice as a seller, but think about the other 19 buyers who thought they might win and didn’t.  Now that it’s your turn to buy, this whole holding offers thing might seem a little flawed after all!  You see listings online from your realtor, spend your evenings after work viewing the ones you like best, you fall in love with one special property, your realtor spends hours drafting up an offer and explaining it all to you, you dream all day about owning it, then later that evening you find out that you lost the offer to someone from the GTA who bid 75k more than you.  How many times could you go through that before you became discouraged?

Wouldn’t it be nice if you could simply see what was available for sale in your price range that would actually sell for within your budget?  Yes, it would be!!  And that’s what we call listing at market value and allowing offers any time!!!  What happened to that?  Of course there are still inventory issues and other factors at play, so I’m not suggesting that listing homes higher and not holding offers would eliminate the competition completely.  What I can guarantee you is that properties would receive far less offers when not priced 100-200k below market value, competition would be much lower, the process would be less stressful, buyer’s could have conditions in their offers more often, and only the best homes would garner the kind of attention that almost every listing (good or bad) is currently receiving.

It’s Makes Buying More Stressful Than it Should Be

Seriously, what happened to simply asking for the price that you want and letting buyers offer accordingly!?  Buying a home shouldn’t be a guessing game of how much over the list price it’s going to sell for and what unnecessary risks you want to take to try and win.

Buying a home is already a stressful enough decision for first-timers, there’s no need to add fuel to the fire with the uncertainty of offer date competition.  There isn’t even a good explanation for sellers to put buyers through this crazy process since almost all sellers will ultimately be buyers too - you have to move somewhere else after all!

It seems very clear to me when there is no overall net benefit to holding offers, yet so many negative by-products, that something desperately needs to change to combat this.  Why have we traded a seemingly simple and fair buying & selling process for something that makes selling a breeze and buying a relative nightmare?  It doesn’t make sense.

The good news in all of this is that with proper representation and an open mind, buying and selling can still be done successfully.  The average buyer simply needs to understand what they are up against from the outset, commit to the process, and with the help of an educated and dedicated realtor, there will be a happy ending.  Using a realtor is actually more important than ever to help navigate these difficult times for you.  It’s a fine balance between having the guidance to only submit competitive offers with a real chance of winning, while being restrained enough to not overpay simply for the sake of winning.  Only a local pro can give you the tools and guidance to walk this fine line with success. 

With all of this out in the open, I do still beg the question: why are we choosing to make it so hard on ourselves when better alternatives exist?  

Why not list homes at or slightly above market value, get an offer, maybe negotiate a little, allow buyer’s to undertake proper due diligence, and then firm up.  Let the truly exceptional homes and the utterly amazing marketing efforts by listing brokerages be the reason a home attracts multiple offers, even when listed at or slightly above market value.  Fighting over neglected homes that have been purposely priced below market value to hope someone overpays is not the answer we need in this day and age! 

In order for this all to happen, we would need a complete buy-in from all realtors and our governing bodies, and in an industry reluctant to change, I wouldn't hold my breath.

Some food for thought.

Thanks for reading, until next time…