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Thursday, June 29, 2006

Edmonton Real Estate Bidding Wars

The following article was published in the Edmonton Journal yesterday. It is written by Ron Chalmers. He raises some good points, but misses the mark overall. My comments are in italics throughout the article....

EDMONTON - In today's tight housing market, many Edmonton homes are attracting multiple offers, some exceeding the list price -- which may punish impulsive buyers.

Whenever there are multiple offers, you can be certain at least one of them is over list price, and most likely by a fair bit.

During May, with more prospective buyers than sellers, homes sold in only 20 days on average, compared to 46 days in May 2005.

In May, for the first time in a very long time (if ever) there were more sales than new listings.

This sellers' market, especially for attractive, mid-range homes, can resemble an auction -- with the list price as a mere suggestion.

Most sellers list their homes close to the values that are signalled by recent sales of comparable properties, says Terry Paranych, owner of Re/Max Elite.

But with fast-rising prices -- up 22.3 per cent in the past year -- such comparisons could be outdated. "You may have 10 or 15 realtors bringing offers," Paranych says.

We know of one listing that received 54 offers.

"Probably seven or eight times out of 10, you receive multiple offers," says Madeline Sarafinchan, president of the Edmonton Real Estate Board.

She advises sellers to not consider any offer within the first 24 hours of listing -- because other realtors may bring better offers.

This is bad advice in our opinion, especially if it is a really good offer. We recently had clients who had one weekend to find a home, as they were from out of town. We found the perfect home for them and while we were showing it, the listing agent said they would not look at offers until Wednesday. Our buyers ended up buying another home for well over list price because they couldn't wait until Wednesday. And guess what? The next weekend we were showing another client homes and that house was still on the market. We questioned the agent and they didn't receive ANY offers. The moral of the story is.... you should ALWAYS look at an offer, regardless of when it is received.

One of her colleagues recently listed a home for $279,00, quickly received five offers, and sold it at $299,600.

All of our recent sales have sold for well over list price. Our marketing strategy for the current market is geared specifically to do just that. Check out our recent sales and the stories behind them at www.JustSoldEdmonton.com.

Competitive bidding may reveal a home's fair market value but can be dangerous for an unprepared, undisciplined bidder. People who expect to buy a home at its list price, then learn that higher offers have been submitted, may feel pressured to offer more than they can afford.

Paranych and Sarafinchan advise shoppers to arrange pre-approved mortgages and only to make offers within their borrowing limits.

Excellent advice.

Shoppers also can arrange a home inspection, before making an offer, to ensure that it can be done quickly.

An offer that is conditional only upon pre-arranged financing and inspection may beat out a higher offer that is subject to a longer delay.

Buyers who submit top-dollar bids with no conditions could be taking big risks.

"I have seen cases where a person buys unconditionally, and there is no statistical information to support the price," Paranych says.

A lender then may not approve the needed mortgage amount.

Plus, if your offer is unconditional, the seller may refuse to allow a mortgage appraiser in, which can make for a sticky situation.

The mortgage normally cannot exceed the appraised value, nor can payments exceed the borrower's ability to pay, says Jill Lindstrand at ATB Financial.

Sarafinchan says she normally will not even show a home to shoppers who could barely afford the list price "because it may end up selling higher."

Mike Dickinson, at Capital City Savings, says a pre-approved mortgage limit might be boosted if the buyer's financial circumstances have improved.

But Ian Glassford, Capital City's chief financial officer, cautions that appraisers must by guided by actual recent prices -- even when a buyer believes that prices are rising. "The lender needs the comfort of knowing that it can get its money back."

A shopper whose unconditional offer is accepted, then cannot find financing, could forfeit his or her deposit, says Jon Hall at the Edmonton Real Estate Board. Also, "the seller may launch a lawsuit for failure to perform," he says.

For example, if someone offered to buy a home for $250,000 with a closing date three months in the future, and if the seller accepted that offer and removed the home from the market -- then could only sell it for $225,000 three months later, when the original deal collapsed, he might sue the would-be buyer for the $25,000 difference.

Paranych tells buyers to arrange financing in advance, to understand their mortgage approval and monthly budget, then to buy within their limits.

If the house you want gets bid up beyond your reach, "don't give up, stay focused with a good agent, and there's always another house that you'll like more," he says.

Attention Ron Chalmers: Please drop us a line before you do your next article, I think we could share a lot of very useful information with you and your readers.

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