How to win a bidding war
Bidding wars are still common for the most desirable properties. Here’s how to win and avoid regrets.
Okay, first let’s be clear that the only true winner of a bidding war is the property seller. Studies have shown that bidding wars always lead to a higher price. So as the “winning” bidder, you’re just the person who offered the seller more of what they wanted than the other hopeful homeowners. There can be a silver lining is you play the right cards, but you need to be strategic and methodical. In other words, keep your emotions in check and emotionally prepare yourself to walk away.
Bidding wars are the unfortunate result of scarcity. Ideal market conditions are balanced and reduce the likelihood of a bidding war, but bidding wars still happen in balanced markets when a unique rarely available property is listed. You should be prepared in case you find yourself bidding neck-and-neck with another love-stricken homebuyer. So here are the best tips on how to keep a level head and get the right house without blowing your budget.
Before You Make an Offer…
Know Your Limit and Stay Within It
Before you consider buying any home and start working with a real estate agent it’s important to know exactly what you can afford. First you can get a good estimate from using our “What Can I Afford” calculator. Knowing how you spend your money will help determine what you can afford.
Get Pre-qualified
Then you’ll want to find a mortgage broker to get you pre-qualified. A mortgage broker will do a thorough assessment of your borrowing capacity. If you get into a bidding war situation you need to know exactly where your upper limit is.
Warning: A pre-approval or pre-qualification does not qualify or approve the property you’ve selected so it doesn’t mean you can make an offer on a property without a financing condition. The bank or lender will still want to get an appraisal of the property and, when appropriate, they will want to look at the strata corporation documents to make sure the building is well run and in good condition.
Even so, other complications that have nothing to do with you can derail financing, for example:
The home was a marijuana grow-op that was subsequently remediated
The home is on leased land
A strata property with an underfunded reserves and expensive imminent repairs
Your credit score drops between the pre-approval and final approval
Be very cautious making an offer without a financing subject, it can give you an advantage in a bidding war, but it can cost you a lot of money if the plan goes awry.
Do Your Research
Before putting in an offer make sure you’ve researched everything about the neighbourhood and the home, and it meets your requirements. Investigate the schools, community centre, public transportation, your morning commute, nearest gym, grocery store – everything. All these things play a part in the value you’ll get from living in the home, so you want to be sure you’re not committing to a beautiful home that leaves you with a miserable lifestyle. You must remember that a home is more than an investment, it’s where you spend most of your time when you’re not working, and it is where you’ll be making most of your memories. After all, if you’re going to be in a bidding war then it should be a home worth fighting for.
Keep Your Agent Aligned
Having an agent who understands your values and priorities, and respects your limits is critical. You’re about to spend hundreds of thousands of dollars so you and your agent need to me on the same page and thinking as one. Make sure your agent has no doubt what your upper limit is and that they can respect that limit.
An agent’s job is to research the other homes sold in the neighbourhood and provide you a likely sale price for the home you’re bidding on. They can’t predict what the what other buyers will do on the day the bids are due, but they should be able to come close in estimating the final sale price.
It’s also their job to help you find a home that meets your needs for the price you’ve told them you can afford. Make sure you and your agent have a good working relationship with a healthy two-way dialogue. If your agent tries to up-sell you on price or encourage exceed your maximum budget, it may be time to find a new agent.
Once Bidding Begins…
Bidding wars are not always about price, so some strategic concessions can save you a lot of money. Many of the tactics used to “sweeten” offers creating risk for the buyers. We recommend you avoid the risks and stick to the low risk tactics.
A Large Deposit
Offering a big deposit on the home can show the seller you have the mans to complete the deal and you are serious about making it work. Ask your agent what what the typical deposit amount or percent in the area is (it can vary) so that you have an idea what other potential buyers may do. This tactic involved putting down as much as you can afford. It will go towards your down payment if you get the property, and you’ll get it back if you don’t firm up the offer. An offer with a large deposit in the form of a certified cheque could mean winning the deal over another buyer. This is a lower risk tactic.
Warning: Don’t do this without a making your offer conditional on financing and a satisfactory home inspection. If your offer is accepted and then your financing falls through, then you’ll lose your entire down payment.
Flexible Dates
Sometimes winning a bidding war can be as easy as agreeing to the seller’s closing dates or even offering to move the closing date up if it works better for the seller. If they’ve already purchased another property and are using equity from their current home to buy the new one, they might be in a hurry. Making it easy for them gives you a better shot at getting the house (even if your offer is a bit lower than the others).
This is very low risk and can build goodwill with the seller. You’re showing a willingness to make the deal work for them.
No Inspection Offers
Typically, an offer to buy a home has a condition requiring a satisfactory property inspection but in a bidding war the seller may choose an offer with no strings attached.
Property inspectors, sometimes called home inspectors, review and evaluate the overall condition of new and existing properties. They are often responsible for inspecting the structural aspects of properties, as well as the heating, cooling, plumbing, electrical, and other systems. Property buyers generally contact these professionals prior to purchasing a property in order to adequately assess its condition and determine if any repairs need to be made.
Warning: Even a brand-new home can have serious structural defects that the city inspectors may not have caught. You should also watch out for flips, because amateur flippers often get in over their head, cut corners, or neglect to get city permits for some of their improvements.
Keep your cool
When it comes to buying a home, emotions can take over. Once, you decide to make an offer, you start to visualize yourself living in the home. It’s scary, it’s exciting, and let’s be honest, it’s thrilling! But getting caught up in the moment can lead to bad decision-making and you could get burned. Be strong and stick to your guns. If you don’t get this home another one will come along.
We recommend you work with your agent to develop a strategy and limits for a bidding war before you’re in one. Making strategic the decisions before you’ve fallen in love with a home is much easier.
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