Get your financing locked down before entering a bidding war
The following post is by Dara Fahy, a leading mortgage planner with The Mortgage Centre Citywide in British Columbia. You can view his BC mortgage rates on Ratehub.ca.
As we enter into what’s sure to be another busy spring market, we are already beginning to see properties purchased over their asking price with multiple offers being presented to the seller. While there are far less “bidding wars” than we saw three or four years ago, a prime property that is priced fairly will often receive multiple offers.
It’s very common that the strongest offer, or “bid”, will win the property, but that doesn’t necessarily mean the strongest offer has the highest price. Often, we will see the seller accept a slightly lower price in return for a “cash” or Subject Free Offer (an offer that does not allow the buyer to walk away for any reason if the seller accepts). This process helps the seller avoid dealing with a subject removal period where they must endure inspections and await the purchaser to arrange financing, all the while hoping and praying the sale goes through. In order to win a property, many real estate specialists will advise to go in with a subject-free offer for this reason.
So how does one deal with this from a financing and mortgage stand point? Two very important words: BE PREPARED.
It’s common for ‘pre-approved’ buyers to assume they can make a Subject Free Offer. However, while you may be pre-approved by a bank or credit union, they must still approve the property you are buying. If the subject property is a condo, the bank will want confirmation that the value is fair, the building is being properly managed, and there are no impending or current issues with the structure or envelope. If the subject property is a detached home, they will want the same confirmation on value, as well as details on the overall condition and how long it will last.
To go in with a Subject Free Offer, you must ensure you have done your due diligence and your mortgage financing is 100% approved, including property details. This may include reviewing strata minutes & financials, performing an appraisal and an inspection. Performing these tasks will take time and come with a cost, which would be lost if you’re not successful in winning the bidding war. Yet this risk far outweighs the alternative of making a Subject Free Offer and placing a deposit on the home, only to find out the bank will not provide a mortgage. The deposit is non-refundable and you could be liable for damages.
A good realtor will be prepared for these types of situations and will ensure you are able to perform this due diligence before presenting your offer. A mortgage broker will be able to ensure you’ve satisfied any potential conditions the bank will require on the property, along with any traditional borrower conditions such as income and down payment. A good selling realtor will allow access to the property for performing inspections and have the strata documents readily available. If they don’t, my advice is to stay away. This situation is simply not worth the risk.
Bottom line: Don’t take chances. Engage a well qualified realtor and mortgage planner with experience in multiple offer situations. This will ensure all the necessary steps are taken and you are ready to make a strong offer.
Happy home hunting!
Dara
Twitter: @darafahy