If you are planning on selling your house or condo in the near future, you should have a thorough understanding for the concept of “holding back offers”. Depending on your location and the state of the real estate market it could benefit you tremendously.
To help you understand the 2 possible situations for selling your home, let’s first outline what a “non-holding back offer” example looks like.
If you list your property for sale and decide not to hold back offers, as soon as your listing goes live on your local MLS system, the property is immediately "open to offers".
Usually after a listing is posted, people book appointments to come look at the home to get a more clear and detailed evaluation of the property. After seeing the home, an interested party could then “submit an offer” to buy the property. This could happen at any time and is often done on a first come first serve basis. It is important to note here that more than one offer could be submitted under this scenario, but it would be purely coincidental.
In the “holding back offers” scenario, once your property is live on the MLS system, in this case there would be an “offer date” clearly stated in the listing, usually 4 or 5 days after the listing has gone live on the system. This means that no offers would be accepted by the seller until this offer date and time. Just like the first scenario, people will come visit the property at any time. The difference now being that it is "not open to offers" until the offer date.
As a result of the "hold back", what you end up having, especially in a hot market, is a bunch of offers all coming in at once on the actual offer date.
Why would this strategy make sense for a seller? Let’s use an actual example to explain;
Let’s say a small house in Toronto is “worth” $1M. To get to this “worth” price let’s assume that a group of experienced Realtors did some data analysis of sales of similar houses in the same neighbourhood and came up with this as the current “market value” of the home.
Now, as the seller If you decided not to hold back offers, again as soon as the property is live on MLS, any and all buyers real estate agents would do the same analysis for their own clients and if interested in the property, would submit to you an offer very likely around that same price of $1M. In this case, the listing price and selling price ARE relatable and heavily correlated.
The hold back strategy is a little different. First off, the property would usually be listed for a little lower than its current market value. In this case somewhere around $980,000.
The simple reason for this is to attract far more buyers. Any buyer with a search ceiling of $990,00 will now find this house in their search. It would have not showed up for them if the property was listed at $1M.
In this scenario, the listing price and selling price are actually NOT at all relatable or correlated.
You could in theory in this scenario list the house for $1 and it would still at the end of the day end up selling at or above it’s current market value, as noted further below.
So with the house listed under $1M, you are bringing as many interested parties to the table as possible. In a hot market you may end up with 4 to 7 offers on average, where all interested buyers are now competing against each other, all having to wait to submit their offers on the offer date.
The end result is that the house will likely sell for a lot more than it’s current “analyzed” market value of $1M. In fact, properties in multiple offer situations often sell for over 25% more than their evaluated price. In this example, $1,250,000, or $260K above asking.
Why? The main reason for the hold back approach is to take advantage of a sellers market where there are more active buyers than sellers. In this case there is a high likelihood that many buyers will all be interested in the property at the same time. This creates a sense of urgency in all the buyers, having the fear of missing out on the property, not wanting to have to start the process all over again if not successful in their attempt to purchase this particular property.
To avoid this, buyers pay more than they would if they were not competing with other buyers, often well above the "normalized" market value of a home.
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