Multiple offers are, bar none, one of the most frustrating things to deal with for everyone involved. Real estate agents run around showing people properties and writing unsuccessful offers, consumers embark on an emotional roller coaster, banks and brokers re-work the same client file over and over, and so on.
Some major markets like Vancouver, Toronto and Victoria are in an absolute frenzy right now and people are scrambling to come out on top. Market opinions aside, there are some very important risks/considerations that aspiring buyers need to understand.
Subject Free Multiple Offers
In hyper-competitive markets, the best offer wins. The “best” typically means the highest price with the least amount of conditions. Many realtors are telling clients to not even bother offering unless they do it subject-free. Specifically, this means that, upon the seller’s acceptance, the offer is firm and binding. Your deposit would now be considered non-refundable, so if you’re unable to complete the deal, you will forfeit your deposit and risk being sued for further damages. Unfortunately, this has become a requirement to even participate in a multiple offer situation, let alone win.
Appraisals, Inspections, and Financing of Multiple Offers
Here are a couple of considerations with subject-free multiple offers, assuming you don’t actually have the required money in cash. Get an appraisal upfront as it will be a requirement for most lenders as they’ll lend on the lesser of the appraised value or purchase price. If you don’t get one, the seller has no obligation to allow access to the property afterward, which would ultimately impede you from getting a mortgage. Do your inspections and property due diligence upfront. Regardless of whether or not you qualify for a mortgage, any property issues deemed undesirable or un-marketable to a bank will also spoil your chance at getting financing.
Responsibility
The onus is on you. In a multiple offer situation, the strength of the offers and borrowers will vary wildly. If you’re a marginal buyer and just squeezing in, you need to be aware of these risks. Banks and insurers don’t underwrite pre-approvals. Your deal won’t be fully scrutinized until you have an accepted offer. A reputable banker/broker can tell you how much money you’ll qualify for, but can in no way guarantee the property. You need to fully understand the process, the risks, and any repercussions and proactively mitigate them.
Let’s face it, multiple offers are the worst. We don’t like them, but they exist. All you can do is be prepared, understand the process and line yourself up with a good team of professionals to help guide you through it.
