This is the third post in a series to help you master this strong sellers’ market. You may want to read the other posts, How to win a bidding war and What price to offer in multiple bid situations.

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While this sellers’ market rages across much of Canada and the U.S., buyers are being challenged to make offers unconditional to be successful in buying property. There is significant risk associated with this practice, and as agents, you want to ensure that your buyers are fully informed.

I’m not advocating for or against unconditional offers. In many markets, it is the only option to purchase good quality properties. In other markets, it is a significant strategic advantage against other offers and might be something your buyers want to explore.

What could go wrong? A lot.

The property appraises at less than the selling price, and your buyer needs additional funds to meet the down payment requirements.

This happens frequently. Here’s the scenario: A property is listed at $699,900 and your buyer purchases the property firm for $825,000. The appraisal comes in at $750,000. The lender will lend on the appraised value, so they will give your buyer a 75-per-cent first mortgage of only $562,500, and your buyer will need a down payment of $262,500. Your buyers were hoping to finance 75 per cent of the purchase price, which is $618,750, and their down payment would have been $206,250. They need to come up with an additional $56,250.

If they can’t do that, they can’t buy the property unconditionally. What if the appraisal was even lower? Banks may alert their appraisers to be more cautious when they feel they are too exposed to risk as this market matures.

There are significant deficiencies in the property.

Buying a property without a home inspection or using the home inspection prepared for the sellers could leave your buyers with some expensive deficiencies in the property. Some homes look pretty good but require many upgrades in the short term. If the property needs a roof, electrical work, plumbing updates, furnace replacement and insulation upgrades, your buyers could be on the hook for over $100,000. While that large a number is unlikely, it’s possible. Are they in a situation to cover this cost? There is the additional complication of well water and septic systems for semi-rural and rural properties, which could add another $50,000 or more in unexpected expenses.

I purchased my Gulf Island property without conditions, and it has the potential to have many deficiencies. It’s an older home in original condition with well water and septic. I am prepared to spend some significant money to meet these deficiencies, so I was able to take the risk of purchasing without conditions.

If your buyer cannot take on the risk of an unconditional offer, what are their options?

If you are working in a market where most offers are unconditional, you may want to consider not taking the client on, or if you do take the client on, looking for properties that have been on the market and haven’t sold. You may be able to negotiate a successful outcome on these listings.

In a market where some conditional offers are being accepted, work hard to make your buyer’s offer as appealing to the seller as possible. I would recommend making the conditions very short and wording them in such a way as to offer the seller as much security as possible. For help with wording better clauses, reach out to your broker/manager or a good real estate lawyer.

Help your buyers make the best decisions for them. Take the time to establish a strong working relationship to protect them in this important transaction. Deliver good-quality information and give them the space to decide how much risk they can take. If they can’t take on risk, be respectful of that and either build a strategy to help them buy properties that don’t go into multiple offers or let the client go and focus your time on buyers that can buy (or even better, finding listings).

10 COMMENTS

  1. The editor needs to note that there is no presence on the web of a Brian Martindale. The best I came across was an auto detailer. Brian Martindale makes some admissions to doing something seriously wrong. Actually it’s called FRAUD. I quote from your text: “I was once a bull-shit appraiser. I could make anything appear to be worth what my clients wanted by way of carefully choosing supporting comparables and ignoring those that did not support the target number.”

    You have also made other contributions to articles such as these: 1. https://www.realestatemagazine.ca/bursting-real-estate-bubble-closing-costs-worry-ontario-consumers/
    2. https://www.realestatemagazine.ca/getting-clients-price-property-accurately/

    What are you achieving by posting these comments in this magazine which I believe is informative and helpful?
    Over to you editor. Time to deal with Brian Martindale as a contributor to this magazine.

    • OOOOOOHHH!!!! Do we have a Cancel Culture warrior at work here?

      Everything I have ever put forth herein is truthful. Am I opinionated? Yesseree Bob! I’m not afraid to admit my former mistakes and talk about them. Let’s hear about yours, hypocrite!

      Do you seriously think there aren’t many other appraisers out there doing exactly what I…and many others in my area…did? It’s an insider business. Don’t forget; my boss was the one who practiced these shenanigans long before I showed up, during, and after I departed the business. He trained me. I had many a fight with him over these tactics. Ultimately, we parted ways, and I left the business. These same tactics were in use within my area by other appraisers as well. You can take that assertion to the bank.

      You don’t like what I sometimes say herein? Tough nuggies! This isn’t a little booklet for kindergarten kids. This is the real world!

      You made one correct observation when you stated that you believe this magazine “…is informative and helpful.” Spot on!

      Have you ever heard of free speech Mr./Mrs./Ms Young?

      What am I achieving? I’m educating readers to the reality of the business and some of its practitioners’ techniques as I personally experienced them. Get your head out from the sand pile.

      Good to see that you’re reading my posts:-)

      BTW: You’d make a shitty editor.

    • I am sorry, but I disagree. Whoever “Brian Martindale” is, he/she brings value to this forum, for many years. You don’t like the food? Well, don’t eat it. There’s plenty of OKe food all over the net.

    • Brian stays. If there was just one truth teller like him for every 100 real estate agents, the industry’s ethics and knowledge would immediately improve.

      The door you came in is open.

  2. Your contributions to this industry is so appreciated Suze. Thank you for another thoughtful article on the issues of the day and an invitation to think about all the various aspects of the situation to do what we do best; protecting & promoting our clients best interests and helping people invest in their futures. I look forward to reading your columns.

  3. Here is how to stop this buying insanity: It’s called conspiracy.

    As of twelve midnight, tonight, all Realtors across the board agree to not show any properties for three weeks. Everyone: take a well-deserved holiday en masse. Watch asking prices plummet as no one views listings. “We’ve hit the ceiling!” the experts will decry. Then, when viewings start up again, encourage buyers to offer well below those reduced asking prices. Watch the scrambling begin in an effort to unload properties before prices drop even more. Sound crazy? Yup. Sometimes crazy is rational. Could this really happen? Not in a million years. Realtors don’t trust other Realtors to keep their words…nor should they….and…the buyers’ herd instinct is too strong. The Lemmings are hell-bent on their run toward, and over, the cliff.

    BTW, when a property appraises at less than the selling price, who the hell thinks an appraiser has the right and/or expertise to render an opinion-for-dollars that says the property isn’t worth what the buyer wants to pay? It ‘is’ to that buyer, and there can only be one buyer per property. The market determines price, not the appraiser. I was once asked to render an opinion by a lender/bank as the sixth appraiser hired to try to close a deal. I was told they (the lender) would go with my number. None of the previous five had appraised the property at the sale price. I did. The deal closed. I was not prepared to tell the buyer that what the property was worth ‘to him’ was wrong. In the end everyone was happy. Prices kept on rising, but at a gradual pace. There was no buying insanity like today.

    This market is proof positive that the residential appraisal profession is a rubber-stamping bull-shit profession. I ought to know; I was once a bull-shit appraiser. I could make anything appear to be worth what my clients wanted by way of carefully choosing supporting comparables and ignoring those that did not support the target number. That’s what my boss/owner wanted; that’s what he got. We were run off our feet with appraisal requests by the local lenders. We were the Tim Hortons of appraisal drive-thrus. We had a license to print money.

    I wonder how long myriads of Lemmings can stay afloat once in the ocean?

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