I came across a draft blog post from nine months ago. I was planning to discuss the “new” 801 form because some people were under the impression that the new form would open up the process by providing the terms of all competing offers.
But holy! How things have changed. Last year, we were worried about the ghost offer. This year, it’s all about price!
Homes are listing at a price that was market value last week and then selling with multiple offers for 10% more or higher. Even a pre-emptive or bully offer will still draw other offers. We saw a townhouse in River Oaks at 1 pm which was the first showing allowed at that listing. Two others showed at the same time. Registered a pre-emptive offer offer at 3:00 pm. There was already an offer and another soon joined. Our offer, which was way over list and firm, didn’t win.
What’s going on? There are a lot of factors driving this market. In the news, we hear a lot about foreign investors, but that’s not who I see at showings and waiting outside of listings at offer presentations. These are Canadians who have sold their home and now need another place to live, or they are millennials just trying to get into the market. It’s a simple supply and demand problem. Every listing that comes onto the market in the starter home price range has loads of interest … immediately. This last week of June has historically been a really slow week but not this year.
Why is supply so low? The greenbelt has contributed to this. Back when the greenbelt was a brand new concept, Pat and I attended a BILD meeting to learn about it. Experts in the land development and building field warned that the greenbelt would eventually drive prices up inside the greenbelt as we ran out of land to build on. And prices are up. A 40 foot building lot is selling for about $600,000 now. At $200 a square foot, the cost to build a 2,000 square foot home on that lot is $400,000. We’re at $1,000,000 for a brand new home and still haven’t added the HST. Net HST on that home would be $106,000. So we’re actually at $1,106,000 for a brand new 2,000 square foot home. And when new home prices rise, re-sale homes follow shortly thereafter.
So here’s what I was going to say about the multiple offer process:
Many people have misconceptions when it comes to multiple offers. Here is some Fantasy:
- All of the buyers will know what the other buyers are offering.
- We will always be given a chance to improve our offer price.
- As soon as we’ve looked at the house, the listing brokerage is bound by law to let us know when an offer is registered.
Here are the Facts:
- The terms of any offer will not be divulged to any party other than the Seller and the Seller’s representatives.
- The Seller’s representative is not required to notify agents who are showing the house that there is (already?) a registered offer. The rep may notify others but it’s strictly a marketing decision between the rep and her clients.
- The new form 801 does not make the multiple offer process into an open bidding process. The form simply deals with ghost offers, or what I call premature offers where a rep states that there is an offer but it hasn’t been signed and therefore doesn’t exist.
If you have any questions about this process, send me an email at email@example.com.