Multiple Offers in Heated Markets
In a large number of cities in South Western Ontario the real estate market is booming. Some may even call it (insert profanity) ridiculous! With booming markets comes multiple offers and it’s important to try not to get caught up in any bidding wars that may ensue. The reason…lenders will only advance on the value of the property, which can sometimes be considerably less than the selling price.
eg. Property listed at $289,900. Sold at $315,000 multiple offers. Appraisal came back at $295,000.
In this example the borrower was originally expecting to put 5% down on selling price, $15,750($315,000 x 5%). Unfortunately, the lender will only provide 95% of the appraised value which is $280,250($295,000 x 95%).
This would create a shortfall to the buyer of approximately $20,000 on closing. Here is how it breaks down…buyer pays 5% down payment on appraised value($14,750) PLUS the spread difference from appraised value to selling price, $20,000. Total down payment required $34,750.
In general, any amount of money that is offered over the asking price may have to come out-of-pocket. This would be on top of your down payment. If you are looking to purchase in a hot market and you expect to be competing with multiple offers, make sure you speak with your mortgage broker to see how it may affect your situation.