Homes are selling incredibly fast and often selling above list price. The reason seems clear…low inventory of homes for sale and many more buyers. Bidding wars are now the norm.
I have heard from many realtors that the strategy is to list the home on Friday, schedule a Sunday open house and accept offers on Monday.
People knowingly present an offer they feel will beat other offers. I have one client that is frustrated for being out bid on 4 different homes. Yet, I have a seller client that received 18 offers on her home and accepted an offer $70,000.00 over list price with offers still coming in.
And because of the bidding wars, banks are now insisting on obtaining an appraisal of the property where in the past they relied on the Purchase and Sale Agreement as satisfactory proof of the fair market price. After all, banks want to verify the fair market value of the property as part of their due diligence and determining what they perceive as the true loan to value ratio.
If the lender bank determines that the property requires insurance from the Canada Mortgage and Housing Corporation, the lender bank will submit the lending application to CMHC who, in turn, will review the application for approval. If CMHC has any concern, CMHC will request their own appraisal to satisfy themselves as to the overall risk. CMHC performs this on a case by case basis and their underwriter will ultimately decide whether to extend CMHC insurance coverage.
I have two simple questions. Are the current bidding wars a self-correcting mechanism to adjust home prices up to their true fair market value? Or, are home buyers going to regret overpaying for their new homes?
Home ownership is great, but at what cost?
Article written by Karmel Sakran
Readers may contact Karmel Sakran at 905-639-1222 ext. 224