Real Estate Talk:
Your best offer
Knowing when your first offer is your best offer and why and when to adjust the price
By Joseph Marovitch
Updated on May 8, 2019
When is your first offer your best offer? Over several years in real estate, I have experienced three times when the seller received an offer on their property that caused my eyes to go wide, and the offer was refused which caused my head to drop.
One time was when the buyer purchased a property just under a million dollars. Due to a circumstance, the buyer had to suddenly relocate to another country and sell the recently purchased home less than a year and a half after signing at the notary. Under normal circumstance, a residential home will sell within six months if priced properly. This property received an offer within six weeks of being placed on the market. The purchase price in the offer was 13% higher then the price the seller purchased the property for 18 months earlier. The offer was on the high end of the scale of the market evaluation.
There is a price for every property that will bring several offers. The price is the fair market value of the property based on either comparable sales or an average cap rate.
The seller’s feeling was that because the offer received was the first since the marketing began, the seller would get more offers at higher amounts and therefore we should wait for another higher offer. I explained that we were approaching the summer workman’s holiday and that August could be a slow month in real estate sales. I explained that a 13% gain within eighteen months of purchasing the property was rare and a very good return. I explained that time was of the essence since the seller could be relocated any day to another country.
The seller refused to sell. Due to being relocated finally eight months later, the seller sold the property for the same price the property was purchased. With the bank penalty for breaking the mortgage and the carrying costs, the seller had to bring a cheque to the notary at signing to make up for the loss.
The second time a seller refused an offer that caused my eyes to water was an income property. The asking price was higher than the broker recommended however not out of the ballpark. An offer comes along that is reasonable for the indicated rate of return of the property. However, the seller wanted more. The buyer raised their offer close to the asking price. In this multi-million dollar offer, the buyer and seller were $25,000 apart. The seller wanted more. Both parties walked away.
‘To price a property higher than market value… can kill the value of the property.’
There is a price for every property that will bring several offers. The price is the fair market value of the property based on either comparable sales or an average cap rate. To price a property higher than market value because the seller requires a certain amount of money to pay bills or wants to move to a private island in the South Pacific, can kill the value of the property. Over priced properties are used by real estate brokers to assist in selling other comparable properly priced properties. Once the public is aware the property is over priced, at a point the property receives less and less attention, until the next wave of buyers comes along.
The third incident was a seller who required a certain amount of money to retire. The seller wanted to sell a condo for an amount that was not generating nearly enough calls or visits. However, the condo was attracting many visitors to the Centris listing.
In determining the success of a marketing campaign, one must look at the number of Centris visits and compare this number to the number of calls, visits and offers. If there are many Centris visits and few calls or visits to the physical property, this indicates there is an interest but not at the current asking price.
‘The first offer is the best offer when the rate of return is better than the average as stated in the market evaluation.’
The seller decided to redecorate the condo rather than reduce the price. This addressed the issues stated by the two visits that took place over three months, however it did not address the fact that there were so many Centris visits but few calls. In this situation the seller is under pressure to sell, but without reducing the price, ends up with no offers and no sale.
The first offer is the best offer when the rate of return is better than the average as stated in the market evaluation.
The price of property should be reduced when the Centris visits are many, but the calls and property visits are few. Another factor when considering a reduction in price is the comments that buyers make when visiting the property. If several buyers visit the property and make the same critical comments such as the bedrooms are a strange shape, or the condo fees are too high for the services offered, or the property is too close to a train track, then a price reduction should be considered to address the objections.
‘The price of property should be reduced when the Centris visits are many, but the calls and property visits are few.’
Finally, a price reduction should be considered if the seller wants to sell quickly.
Should you have questions or comments, please refer to the comments section at the bottom of the page. As well, to view past articles, click here.
Have a great week!
Next topic: Renting your country home
State of the market
In past articles I discussed the effect of foreign investors buying property in Montreal since there are no restrictions on foreign investment. Well, according to Altus Group, a commercial real estate software company, foreign investment in Montreal has increased by 183% over the past year.
Further, Altus states that sales volume of investment property has increased by 18% or $6.5 billion between 2018 and 2019. There are more factors that come into play than foreign investment causing real estate prices and volume to increase. Over the past few years, Montreal has enjoyed relative calm from the turmoil of its politics. The jobless rate has decreased, and people are accumulating more disposable income, combined with low interest rates allowing for real estate investment.
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Read also: other articles by Joseph Marovitch
Joseph Marovitch has worked in the service industry for over 30 years. His first career was working with families from Westmount and surrounding areas, hosting children between the ages of 6 to 16 as the owner and director of Camp Maromac, a sports and arts sleep away summer camp established in 1968. Using the same strengths caring for the families, such as reliability, integrity, honesty and a deep sense of protecting the interests of those he is responsible to, Joseph applies this to his present real estate broker career. Should you have questions please feel free to contact Joseph Marovitch at 514 825-8771, or firstname.lastname@example.org