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Ask a Realtor: Don't Hold Back on Holdback Offers

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"Ask a Realtor" appears Thursdays. Have a real estate question for Susanne? Please email her at asksusannehudson@gmail.com, and she will publish and answer the questions of most general interest.

Q. What is a "holdback" and is it a good idea?

Holdback Offers are a marketing tool whereby the property is listed for five per cent under market value and offers are held back for a week. They are taken on a certain date in anticipation of multiple offers with the property selling for 10 per cent or more over the asking price. When you list your home for sale, your real estate agent will talk about how to best market your property. You may decide to list your home at a price comfortable for you and based on comparable sales in your neighbourhood. Your home is basically then ready to receive offers anytime. Or, you may decide to market your home using a holdback offer scenario.

This is strictly a marketing tool but it is most commonly used in a seller's market (very few homes for sale), in a very active market or sought-after neighbourhood, or, with a house that is pretty perfect and will be very attractive to buyers at that price point. It may also be a house that is attractive to developers or an older bungalow on a wide lot -- or even better, a double lot -- that can be torn down and a new house or houses built for three times the price of the lot/bungalow.

Listings with holdback offer clauses predictably come out early in the week with an open house for agents mid-week and a public open house on both days on the weekend. Sometimes a home inspection is done and provided for buyers ahead of the offer date. The offer date may be on the Sunday night or one night the beginning of the following week.

Pricing the property takes into account that you expect multiple offers. The home is listed at probably five per cent under its market value in hopes of getting 10 to 15 per cent over asking. This is not without risk since if there are not multiple offers, you may get one offer at your listing price (five per cent under asking) the night of the offers.

The night of the offers, most buyers have been pre-approved for their financing/mortgage and they have had a home inspection of the property ahead of the offer date (or a current one is made available by the seller). Therefore, In Toronto -- certainly in the central core -- most offers come in without a financing or home inspection clause. The number of offers and the final sale price depends on the number of offers and how attractive the house is to buyers.

Most buyers don't mind paying a bit over the market value if the house and/or area are outstanding and rationalize that the house will probably increase in value by that much over the next year or so. The caveat here is that the house has to appraise at the buyer's accepted offer price and if it doesn't, the buyer has to come up with the difference. In my experience, this doesn't happen very often.

Benefits of holdback offers to the seller: not just an increase in price but also an efficiency of time. Less time on the market if it works and less stress for the seller!

In the first three months of 2012 the percentage of holdback offers have varied and so have the results -- from two per cent over asking in slower areas to up to 18 per cent in more sought- after areas. In the downtown condo market, most of the condos do not have holdback offers and sell close to asking price. Lofts do somewhat better and have perhaps 20 per cent with holdback offers/over asking price.

So in sum, holdback offers are a marketing tool and are most commonly used in a seller's market or an active market. In a buyer's market (lots of houses for sale, few buyers) there will be few holdback offers. Holdback offers have been in place for over six years. There you have it!