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Toronto Real Estate Blog
When not to accept a conditional offer
Wednesday, 25 January 2012, 09:07:34 AM

I was in a multiple offer last week and shared this story with my client and thought it would make it would make for an interesting (and relevant) post this week.

When sellers are in a position to accept more than one offer, price often becomes the differentiating factor. While price is extremely important, it’s not the only consideration…

Last year my wife and I had listed one of our income properties for sale in the Beaches neighbourhood and were reviewing offers a week later. Fast forward to offer night and we 4 offers to review (3 of which I considered in the same relative ballpark).

All 3 of these offers had our desired closing date. Here is what the offers looked like:

Offer # 1 was for $462,000 with no conditions, $25k deposit.

Offer # 2 was for $480,000 with a financing condition, $10k deposit.

Offer # 3 was for $470,000 with no conditions, $30k deposit.

At first glance, Offer #2 had the highest price however I asked their agent to explain why they were including a financing condition. The agent said his client’s plans were to live in the home and he was “rock solid” and he wouldn’t have any problems with financing.

“Ok”, I responded. “If financing wasn’t going to be a problem, then why include the condition?”

The agent explained that his Banker had recommended to include a financing condition in all offers that were to be presented.

I thanked him and asked him for a few minutes for my wife and I to make a final decision.

While it was awfully tempting to take the highest priced offer ($10,000 over the second highest offer) – for a split second I thought of what I could do with that extra $10,000 if the deal were to go through. Then, I asked myself : what would I advise my client to do in this situation?

The answer was an easy one – accept a firm offer, even if it isn’t the highest priced offer. And that’s exactly what we did.

I took agent of Offer # 2 and told him we’d accept a lower offer without any conditions and gave him the following advice: Your client needs to find a new Banker. Find one that will give him a full pre-approval so he can be competitive in the next multiple offer scenario he finds himself in. The agent thanked me for the advice and went on his way.

Fast-forward 3 weeks later that very same agent gave me a call. The good news is that they got an accepted offer (in multiple offers) and was looking for the name of a of a mortgage broker to help his client. He was also looking for some friendly realtor-to-realtor advice, which I happily gave as well.

Anyhow, the story didn’t end so well for this realtor’s client – long story short is he couldn’t qualify for the mortgage and had to walk away from this great home. He simply didn’t have enough stable income to qualify for the mortgage.

For a second, I felt bad that things didn’t work out for this guy, but at the end of the day there were a couple of important lessons to be learned from these series of events. First, if you’re in the market to buy a home – contact your mortgage broker first – they’re a fantastic resource and will give you options before you start house hunting. As a seller, the second lesson was – don’t be greedy – if you’re in the fortunate position to have more than one offer on the table, always give the most weight with the unconditional offer. An unconditional offer shows that they have done their homework ahead of time and if the offer comes with a healthy deposit – this only confirms their commitment to the purchase.  As a seller, you want piece of mind knowing you can focus on your next move.

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