Quite recently we listed an authentic brick and beam loft in downtown Toronto that hit all the right buttons.
Configured as an open concept studio – comprising an efficient 665 square feet – this heart-grabbing space felt larger than life. With its 12 foot wood beamed ceilings, luxe finishes and three floor-to-ceiling banks of doors between brick columns connecting to a private 312 square foot garden terrace, this was more like a polished movie set. Better still, the unique urban home came with parking and locker, and reasonable common fees, such that the attractive list price of $399,000 garnered loads of attention. In fact, during the seven days the property was available to view in advance of the offer date, this listing had 63 private viewings and over 70 visitors to the two weekend open houses.
The end result?
Yes, to our surprise, an astonishing 25 offers!
First, Yes we acknowledge this offering was competitively priced. Our seller, who the week earlier had purchased a property with a quick closing, directed us with the maxim “Sell My Place!”. In other words, looking to have his loft sold firm and binding in advance of closing his next purchase was critical, so rather than set a value that might cause the property to sit on the market for an extended period of time, our Seller agreed with our strategy to let the market dictate the value while ensuring he obtained the quick closing he desired.
The list price we set was based on a recent sale in the complex which also had a terrace, parking and locker. It was a larger unit that had less natural light, and the condition wasn't as polished. Our list price was directly correlated to the sale price per square foot of the comparable listing, so we knew that whatever sale price this loft garnered would reflect some intangible factors. First, a smaller unit will always sell for more because there are generally a larger supply of Buyers seeking smaller spaces. Natural light also elicits a premium, and a loft that shows well will always attract more interest. Plus it's often all about the serendipity of timing.
We came to market late Wednesday afternoon with a holdback on offers until the following Tuesday. The status certificate and accompanying condominium documents were available, the loft professionally photographed with floor plans attached, and it was impeccable styled – not by a staging company – but by the seller's own tasteful doing. It was a dreamy showcase offered the first time for sale since our Seller bought this one-of-a-kind loft from the developer, and it came on the market when nothing of the sort was available.
We've never shared how a bidding war has unfolded play by play, though we've written about this phenomenon several times before. Here's our newsletter on Bully Offers and Bidding Wars that explains the nuts and bolts of the process.
We run a pretty transparent program when handling a bidding war. The MLS listing requested realtors submit their offers by email at 3pm on the Tuesday afternoon with an irrevocable of 9pm. Our Seller had directed us to vet the offers while he was at work, so that when he wrapped up he could review all the final submissions around 7:30pm and move into acceptance. From past experience, not all offers come in precisely at 3pm… realtors will call advising us that they're in progress of getting their bids signed or the buyer is at the bank getting the draft, so we always anticipate a little bit of delay getting started.
In the bidding war process, we review each bid and counsel the co-operating brokers as to the merits of their bid and our concerns – whether that be issue with the closing date, the size of the deposit, the presence of conditions and other clauses, plus the strength of the price relative to others. While we cannot give exact specifics on the contents of any bid to those submitting offers, we typically provide a ranking relative to the competing bids while communicating whether their buyer has a shot. Given we are working for the Seller, we encourage realtors to have their buyers submit their best bids from the get go, yet acknowledge we are prepared to go a couple of rounds. We do this because every realtor has their own preferred working style and approach. As a result, whether the buyer submits one time or three is up to them, though we ask no one to drag their heels to cause undue delay. Time is always of the essence.
This is a good time to acknowledge that there are no rules in how a bidding war transpires. Every realtor handles it differently which is partly why Buyers can get so frustrated. And realtors do too. When we're representing a Buyer competing against others, our strategy will vary depending on the conversation we have with the listing broker in advance of the offer deadline. Often we're advised that it's a 'one shot deal' with the caveat that “only if the top ones are very close will they be invited to resubmit”. Others advise they'll go any number of rounds. What's key is establishing the process with the listing broker in advance of the offer deadline.
One thing about the bidding war that drives us bonkers is when the listing realtor isn't very forthcoming with information or contacts us encouraging our Buyers to improve their offer and resubmit even when they never had a chance of securing the purchase. I think it unfair to give a Buyer the impression they have a shot when they don't, or making our Buyer wait all night to find out at 11pm the property went to someone else for a sum our client would never have remotely paid. This is mostly why we set our offer deadline in the afternoon. First, we want to provide a window of time to receive all the bids and then a few hours to complete the negotiations in the early evening. Also, we personally don't think Buyers should be competing well into the night when they're exhausted, stressed and easily untethered. We'd rather they purchase during daylight hours when they have their wits about them, and they're also usually at work near email and a scanner should they want to resubmit their bid. We find the process moves much more quickly when it's done in the afternoon than at night, too.
We also never send all the offers back, but always keep the top bid in our possession while advising the other realtors that they're not in first place. Only when a realtor resubmits and bumps the lead bid do we contact them as to where they stand. Realtors will also call us once we let them know their ranking and suggest an “improved price” that their Buyer is willing to pay. If this sum is potentially going to secure the property we'll encourage them to proceed while acknowledging the process is still underway and there's no guarantee. However, if the improved price still isn't going to be significant enough we'll be straight up and tell them to save themselves, and their Buyer, the time and effort to put it on paper. We'd rather the Buyer know as early as possible that their bid is not strong enough to secure the place so they can lick their wounds and continue with their day. Wouldn't you agree?
Some realtors don't like our process, but the reality is that we're always representing the interests of our client. We often have to say to the co-operating realtors “You know we're working for our Seller, and we respect you're working for your Buyer, but our objective is to have you resubmit until you tell us it's your Buyers final bid. When you tell us there's no more improvement and it's your final offer, the bidding war will move into its conclusion.” We believe this works well. In this instance, despite 25 offers, only one Buyer submitted three times and everyone else once or twice. In our opinion this demonstrates our process works effectively and fairly.
So here's how the 25 Buyers bid, from the lowest to highest amount on the first submission:
1) $400,000 with a condition on review of the status certificate (which had been made available to all parties from the date of listing).
2) $403,000 with a condition on review of the status certificate. The realtor representing this buyer said the buyer was willing to improve to $445,000 with the condition remaining. We indicated that regardless if it was put into writing it would not secure the purchase as there already were superior offers.
3) $405,000 with a condition on financing and review of the status certificate.
4) $409,000 with a condition on financing.
5) $409,000 with a condition on financing. This buyer resubmitted their offer at $420,000 with the condition remaining.
6) $410,000 firm no conditions (In my books, this bid was the first real contender – as any offers with conditions in a bidding war are not as competitive as those with no conditions).
7) $420,000 firm no conditions.
8) $420,000 firm no conditions. This realtor verbally indicated his buyer was willing to improve his bid to $450,000, but we communicated a higher price had already been submitted, rendering a resubmission fruitless.
9) $427,000 firm no conditions.
10) $430,000 firm no conditions.
11) $430,000 firm no conditions. The realtor verbally indicated a willing on the buyer to improve his bid to $455,000, to which we communicated it would not be strong enough.
12) $430,500 firm no conditions.
13) $432,000 firm no conditions.
14) $434,435.62 firm no conditions.
15) $435,000 firm no conditions. This buyer improved their bid to $440,000.
16) $435,800 firm no conditions.
17) $441,313 firm no conditions.
18) $442,000 firm no conditions.
19) $445,000 firm no condtions. This buyer improved their bid to $452,500.
20) $450,000 firm no conditions.
21) $447,000 firm no conditions. This buyer improved their bid to $452,000.
22) $450,500 firm no conditions.
23) $456,100 firm no conditions. This buyer improved to $469,100 and then a third time to $479,000.
24) $460,000 firm no conditions. This buyer improved to $480,000. This Buyer secured the property.
25) $468,000 firm no conditions. This buyer improved to $475,000.
A few observations on the merits of the offers.
First, if a well-priced property is a contender for a bidding war, don't submit an offer with conditions on completing your due diligence and expect you've got a shot. Five of the twenty-five offers had conditions. Essentially they never had a chance. Even had a Buyer submitted the highest price with a condition on review of the status certificate, we would have counselled our Seller to take the top offer without any conditions, as accepting a conditional offer leaves the opportunity for the sale to collapse which is extremely risky. If you're a Seller who can choose from 25 offers, you want to wrap it up firmly and squarely that night, as re-creating that kind of Buyer momentum (and a 20% price premium) could be near impossible.
Second, we didn't specify this in our summary, but several of these offers were not accompanied by a bank draft. While an undertaking to provide the deposit in a specified time is sufficient consideration, and a buyer cannot weasel out of a deal by not coming up with the money, from a practical point of view a bank draft submitted with an offer is the best way of demonstrating sincerity. And do not underestimate the weight a Seller attaches to an offer when the Buyer has invested their effort and $7 to get a bank draft prepared and submitted with their offer. Did you read our post where our Buyer secured a house for just $100 more than the second bid because our offer was also accompanied by a bank draft? Here's the story called 'A Winning Bidding War Strategy'. It shows how we operate when representing a Buyer on the other side of a bidding war.
Third, if you look at the spread in offering prices, notice that there was no clear winner here. Yes, only three bids exceeded $460,000 but they were all effectively within one percent of each other, and the top price of $480,000 – a full twenty percent more than the list price – was supported by the second ranking bid which was a crushing $1000 shy of this sum. Having won a bidding war by $100 (see link above), the idea that one Buyer 'shot over the moon' to win a bidding war is not as common as one might think.
Do you want to fully understand the different factors which drive a property price up? Read our must-read post called “Oh So Weary Of Bidding Wars” that outlines the four factors which influence the final sale price in a bidding war.
~ steve and the urbaneer team
** Did you see our Toronto Real Estate Fall 2014 Forecast: Part One and Urbaneer’s Toronto Real Estate Fall Forecast 2014: Part Two? Read this if you're looking for an up-to-date assessment of the Toronto real estate market. And please know if you, or someone you love, require assistance in today's intense market, the urbaneer team are here to help!
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Tales From The Real Estate Trenches