If You’re a Buyer, Is Offering Asking Price Enough? September 30, 2021
Ian Walterhouse
Thursday, September 30, 2021
If You’re a Buyer, Is Offering Asking Price Enough?
In today’s real estate market, buyers shouldn’t shop for a home with the expectation they’ll be able to negotiate a lower sales price. In a typical housing market, buyers try to determine how much less than the asking price they can offer and still get the home. From there, the buyer and seller typically negotiate and agree on a revised price somewhere in the middle.
Things Are Different Today
Today’s housing market is anything but normal. According to the Toronto Regional Real Estate Board,
“It is clear that the demand for ownership housing remains strong. At the same time, the supply of listings is down. The result has been tighter market conditions and sustained competition between buyers, resulting in double-digit annual increases in selling prices.”
Homes selling quickly and receiving multiple offers highlights how competitive the housing market is right now. This is due, in large part, to the low supply of homes for sale. Low supply and high demand mean homes often sell for more than the asking price. In some cases, they sell for a lot more.
“The fact that new listings were at the lowest level for the past decade is alarming. It is clear that the supply of homes is not keeping pace with demand, and this situation will become worse once immigration into Canada resumes (and demand increases).” said TRREB President Kevin Crigger.
You May Need To Rethink How You Look at a Home’s Asking Price
What does that mean for you? If you’ve found your dream home, you need to be realistic about today’s housing market and how that impacts the offer you’ll make. Offering below or even at a home’s asking price may not cut it. In today’s market, the highest bidder often wins the home, much like at an auction.
Currently, the asking price is often the floor of the negotiation rather than the ceiling. If you really love a home, it may ultimately sell for more than the sellers are asking. That’s important to keep in mind as you work with your agent to craft an offer.
Understand An Appraisal Gap Can Happen
Because of today’s home price appreciation and the auction-like atmosphere in the selling process, appraisal gaps – the gap between the price of your contract and the appraisal for the house – are more frequent.
According to data from CoreLogic, providing data from the United States (no comparable data for Canada is currently available):
“Beginning in January 2020, nationally, 7% of purchase transactions had a contract price above the appraisal, but by May 2021, the frequency had increased to 19% of purchase transactions.”
While the situation in Canada may be slightly less common, an appraisal gap can happen. And when this happens, your lender won’t loan you more than the home’s appraised value, and the seller may ask you to make up the difference out of pocket. Buyers in today’s market need to be prepared for this possibility. Know your budget, know what you can afford, and work with a trusted advisor who can offer expert advice along the way.
Bottom Line
Bidding wars and today’s auction-like atmosphere mean buyers need to rethink how they look at the asking price of a home. Let’s connect so you have a trusted real estate professional who can advise you on the current market and help determine what the market value is on your dream home.
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