Duane Leslie represents a lot of buyers.
The Keller Williams Referred Urban Realty sales representative has been in his share of bidding wars with clients, especially with entry-level properties, as first-time buyers clamour to enter the market.
In that environment, and often out of frustration from clients who keep losing out on homes or as a inquiry from buyers from other countries who might be used to a more public process, he often gets various forms of this week’s question.
Should competing offers be made public?
I don’t think knowing what buyer one, two and three have on the table is going to necessarily drive up the price because as a buyer, you need to first understand value.
If that condo is worth half a million and these other buyers have put $490,000, $505,000 and $510,000, then I have a decision as to whether I want to put down half a million or put down $530,000. I don’t have to do it, but it depends how much I want the property. I think the concern for buyers is, “How do I know what others have and how do I know what it’s worth?”
The first thing a buyer should have is education on past prices. I’ve always told buyers that future prices are always based on past prices. A seller is going to want what the last property got, plus more. It’s up to the market — market meaning the buyers — to decide if they want to give the seller that same price or more.
It also comes down to two other factors: the amount of inventory on the market and interest rates. For example, in Toronto, I believe there is not enough inventory to supply the buyers. This is why you have that strategy of listing at low prices, holding back offers and hoping for a bidding war. This only works when there’s no inventory. If you go to Calgary, it’s a buyer’s market. There’s a lot of inventory, so buyers can come in, give whatever price they want and walk away.
To come back to the question, I think it’s not just competing offers that affect prices, it’s inventory, interest rates and the decision of the buyer in terms of what they see as value. Do they want to put down a higher price or not? I don’t think offers should be made public. I can look at it from all points of view, but let me look at it through the eyes of the buyer.
Anybody can come and push one buyer away and give whatever amount of money they have. The buyer that got pushed out is now like, “What the hell? I just scraped up all my money. I put down my price. You advertised it to the public and now I have to walk away hoping the next person selling in the building doesn’t put $550,000 or higher for their price?” As a buyer, my price should be confidential. You shouldn’t know my name, my price or my financial situation.
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This is how I think about it, but I represent a lot of buyers so I hear this complaint a lot. I just answer them with these questions, “What’s the most you want to pay and do you feel comfortable walking away if you have to pay more?” I don’t think having a price advertised would affect my buyer’s decision. They already know what they can afford as a mortgage from the bank and can decide what they want to do. At the same time, the bank’s going to qualify them to see if they want to lend them that money. There are controls in place to keep prices a certain way. It comes back to the buyer and I don’t think advertising the price will make a difference.
There’s only positive I can think of for buyers when advertising offers. Other buyers know whether or not to put in a bid based on what they can afford. If someone puts in a bid at $495,000 and I only have $490,000, I know I’m not going to be able to get that home so I’d know when to walk away. I think looking at a sticker price on a car or something that can be duplicated is completely different than looking at the sticker price of a unique home that has unique features. For the seller, if the price is advertised, you won’t get as many offers. This is because buyers will know whether they can afford to match or exceed that offer or not and if they can’t, they’ll walk away.
Multiple offers come down to fear of loss, so it comes back to the emotion of the buyer, what they value and whether they can afford to walk away. For the seller, there won’t be as much competition because the leading offer has been advertised. The seller may still get more according to how bad the remaining buyers want it, even knowing the offers. At least, the seller knows they’re getting above market value.
Non-disclosure keeps the process fair because as a buyer you know your numbers. What can I afford to buy at and what am I comfortable buying at? When the offer is hidden, everyone who puts in an offer believes they have an equal shot at consideration.