Winning the Bidding War — Multiple Offers
In this post, we’re going to discuss bidding wars — a topic that’s very relevant in the current real estate market. I’m going to provide you with lots of insights, tips and strategies on how to be successful in today’s competitive market. Bidding wars can be very anxiety-provoking, but there’s really nothing to be fearful of. It’s all about knowing your market and your budget.
Due Diligence: Market Value, Price and Knowing Your Budget
The biggest fear most people experience on entering into a bidding war is the price. They ask, “How much am I going to have to pay?” The reality is that before you set foot in a home you’re considering, you and your realtor should sit down and figure out your budget and the market value of the property under consideration. When you know the market value of the property and your budget, you can determine whether or not that property is affordable, before you visit it. So be an informed buyer. It will help you eliminate properties that you can’t afford, avoiding disappointment and time waste.
When it comes to determining what offer you’re going to make, it is crucial to do your due diligence before making an offer. The reality is that the list price is sometimes irrelevant.
For example, if a property is listed for $849,900 and your budget is $900,000, but that type of property is currently selling for $950,000 to $1,000,000, your realtor should be able to advise you of that before you even go out and look. Even though the asking price is within your budget, the property may in fact be beyond your financial reach because of what’s happening in terms of prices in that neighbourhood. That’s why it’s imperative that you have a great realtor on your side. Your agent will provide guidance about the actual market values in any given area. So, when you do find the right house that’s within your budget and you understand the market value of the house, you’ll know you have a legitimate opportunity to obtain that home. You and your agent can sit down and construct a sound offer that will put you in the best possible position to be successful. Having this knowledge up front will mean that when you get into a bidding war situation, you’re prepared. You’ll be confident and competitive for any given property.
Keep Calm and Bid Strong
Facing a situation where there are as many as 10 offers on a property can be very stressful. I always tell my clients not to worry about how many offers there are. I encourage them to offer what they think the property is worth and what they can afford and not worry about what other people are offering. The truth is we have no control over the other offers, but I know from experience that in any given multiple offer scenario, there may in fact only be a few legitimate offers. Some of the offers will be eliminated immediately because they are too low or have too many conditions. So don’t get caught up in how many offers there are. Having a good agent and knowing the market and your budget will help you go in with an offer you can be totally confident about.
It can help to look at the deal from the seller’s perspective. Yes, price is a critical component, and sellers typically want the largest amount of money possible. But price is not the only component to consider. To win a bidding war, you need to be clear on these critical parts of your offer:
- What kind of financing you can arrange.
- What closing date you can accommodate.
- What conditions are attached to your offer.
The seller is looking for a solid offer from you. They want to be confident that you have the ability to close the deal.
Knowing the Listing Agent’s Style
For buyers, another key part of coping with the bidding war process is knowing the listing agent’s style. Agents can have different styles; some are professional and well organized and some are not. When there are multiple competing offers coming in at the last minute, it can be bit of a frenzy. You as a buyer may find yourself sitting on pins and needles — it’s just an unfortunate part of the process. When you have a truly professional realtor on your side, they will facilitate the offer process so that it’s punctual and organized and therefore, less stressful.
Go in with Your Best Offer
Clients often wonder if they should go in with their best offer or submit an offer below their budget, leaving ‘room’ for improving their offer if necessary. My best advice about making offers in a bidding war is this:
- Be very clear about your maximum budget and what you’re comfortable paying.
- Know what the market value of the property should be.
- Know what kind of conditions (if any) you’re going to be putting in.
- Know how much deposit you are going to be submitting and be absolutely certain your deposit is ready to accompany your offer.
A note about deposits: Your deposit funds must be available, so make sure that you’re well organized. A seller’s biggest concern is going to be whether you are going to show up with the deposit. Sellers are not going to wait for days. Legally, they have to receive the deposit within 24 hours. Be ready and you will be in good shape to compete.
Clients often ask me, “What kind of conditions should I put on my offer?” The answer is really going to depend on your comfort level and how aggressive you want to be. As I mentioned earlier, my suggestion to clients is always to do your due diligence upfront. But in multiple offer situations, the stakes are higher and conditions can become problematic.
Home inspection conditions:
I often advise clients who have concerns about the condition of the property to have the home inspection done before making the offer. Some clients take issue with that, saying, “Stuart, what if I spend $500 on a house inspection and I don’t get the house?” Well, consider it a cheap insurance policy. It’s better to know what you’re buying than to go in blindly and not feel comfortable and confident. If your home inspection report unravels something that you’re not prepared to deal with, then you may decide not to offer on the home and you’ve dodged a bullet. Or, if the home inspection report reaffirms that this is a great home in really good condition, any fears you had are put aside and you can move forward on the offer with confidence. Making an offer without conditions always puts you in a stronger position.
Your lender is always going to advise you to put a financial condition on any offer you make. That’s the lender being prudent and they’re not wrong. However, in a competitive, multiple offer situation, the reality is that you’re not going to have the luxury of leaving that condition in place. A really good mortgage professional should be able to help you with this. After all,
the seller wants an offer with a good, guaranteed deposit and they want no conditions. They want a legally binding contract. Sellers are coached to accept firm offers, so you as the buyer need to position yourself favourably. Your strategy should be to be able to go firm with confidence, knowing that you’ve done all your due diligence in advance. With those elements in place, you have nothing to be fearful of.
Second Offers, Second Chances?
I’ll get asked, “Stuart, will I get a second opportunity to submit an offer?” The honest answer is, “I don’t know.” It really depends on the listing agent and the seller. If they see an offer they like, they can just take it, so my suggestion is generally put your top offer out front. If you hold some money back, you are giving a competitor an opportunity. The seller may ask bidders to go back and improve their offer, which results in the price being inched up. This can sometimes lead to the deal costing more money than if you had gone in with a strong offer from the start. The seller may look at the gap between your strong first place offer and decide that there’s no way the person with the second place offer will come up to
meet it. So they take your offer and it’s done. But if you hold back and there is a second round of bids, you have to accept the risk that someone else might put in a bigger offer. If someone else with deeper pockets wins the deal, then you weren’t going to get that property anyway. So my advice is to go in with a strong first offer and blow everyone out of the water.
Personalizing Your Offer and the Power of Emotion
Another critical element in the multiple offer process that you should consider is whether you can personalize the situation. Does the seller have an emotional attachment to the property? What kind of person are they? I’ve had some great stories from both the listing side and from the buying side where emotion played a surprisingly important part in the deal.
I vividly remember a listing where a couple were selling the home they had lived in for fifty years. They had raised their children in this home and they were very emotionally attached to the place and the neighbourhood. The sellers assured their neighbours that they would not sell to a developer. They were committed to selling their house to a nice family that would fit into the neighbourhood and be aligned with everybody on the street.
Another listing I remember had the seller accepting an offer that was $50,000 lower than a developer’s offer. I never would have believed in a million years that they would take an offer that was $50,000 lower, but it actually happened. The seller cared about the fate of the house and the neighbourhood and was willing to take a big financial hit to make sure the
home they were leaving would be well looked after.
Another interesting experience during a multiple offer situation I had was when I represented a woman from a small village in England. By coincidence, the seller, whom we met during one of our visits prior to making an offer, had come from the very same village. Because of their shared history, the buyer and seller made a real connection. We used that
to our advantage by submitting a letter with our offer that reminded the seller of the historical and emotional connection they had with the buyer. It
worked! Our buyer had a clean offer but it wasn’t the highest offer. She won the bid. When the buyer and seller met after the deal was made, they all hugged. It was a lovely moment. The sellers were very happy that their home was going to a like-minded person with whom they felt a connection.
These sorts of stories are something to be mindful of when you are getting into a competitive situation. Money and price are not always the deciding factor in a bidding war. Often it’s about personal values and connections. Being creative and positioning yourself in the best possible light can serve you well and give you the best possible opportunity to get the property you want.
I hope that by sharing my knowledge and experience I have taken some of the stress and worry out of bidding wars. If you would like to know more or you have any questions, please visit my website at livingthe6ix.ca where you’ll find my contact information, as well as much more about buying and selling real estate in Toronto.