How do you survive a bidding war? As the fall market is ramping up again and tales in the news of buyers getting caught in crazy bidding wars, you need to have a plan to make sure you don’t get caught up in the craziness.
After a bidding war, one lucky home buyer is successful but the rest are left in the wake still without a home, scratching their heads wondering, “What happened”?
We’ll walk you through the strategy of multiple offers and show you how you can best prepare yourself to buy or sell in this situation.
Let’s start with the Buyer’s perspective…
You’ve been looking at homes and have finally fallen in love so you decide to put in an offer.
How do you play a bidding war? How do you win? And without paying too much?
Sadly, there are no guarantees. But there are a few things you can do to give yourself the best shot possible.
Always have your financing approved and ready to go. An offer with a financing condition is one of the weakest approaches.
Ensure you have a strong deposit relative to the value of the offer and make sure it’s a certified cheque.
Make the Offer Clean
If at all possible, do not include any conditions in the offer. However, if there are conditions that you need to protect yourself, you need to work within your comfort level.
Get a home inspection done prior to the offer if the owner has not done so already. It may seem like wasted money if you don’t get the house but you don’t want it to be the reason you didn’t get it.
If there are any questions about the property that you need to know beforehand, do your research first instead of making your offer conditional on the ability to expand the house or add parking etc.
Give the Owners what they Want
If possible, give the home owners exactly what they want. Most important can be the close date. If it’s a matter of staying at the in-laws for a couple of weeks to get the house, you may be willing to make that sacrifice 🙂
Don’t get petty – if they want to take the chandelier, don’t ask for it back in your offer.
Name Your Price
A friend once described it as being like a poker game. You don’t know what everyone else has and you have to make your bet blind.
Wait until just before offer time to put yours in.
Why? You want to see how many offers are in – there is a theory that the more that are submitted the higher it’s going to go. You also don’t want to inflate the price other bidders after you are putting in.
Decide what you are willing to pay for the house.
Some people can’t get over paying $X over the asking price. The list price is usually artificially low anyway so you can’t use that as a benchmark. Review comparable homes sold in the area. If you had never seen the asking price, what would you be willing to pay?
Determine how far you will go to get the home.
Some people are comfortable with upping their bid to get the house. Think how you would feel if you lost it by just a few thousand.
Whatever the number is, at the end of the day you have to feel comfortable with your bid to the point that if you didn’t get the house, you are ok with it because you would not have paid more. Or if you win, you will never grumble about paying too much.
The Bully Offer
Some people simply lose patience with the whole process, especially if they’ve been down that road before and lost. They’ll find a home they want and will do what’s called “bullying” an offer by putting in an offer before the offer date.
This will only work if the offer is substantial and worth it for the home seller to jeopardize the multiple offer process. If they agree to view your offer, legally they still have to offer any buyer who has viewed the home with an agent the opportunity to submit and offer.
But this strategy can win as it may rush other buyers to the point where they will back out. Your offer should have a very short irrevocable time on it. Just enough to be reasonable but not long enough to let the competition get their act in gear!
Some buyers simply don’t want to play the bidding war game to begin with. Or, they may be looking for something specific that just isn’t on the market at the time.
We don’t let them play or wait if they don’t want to.
One of our strategies is to target specific streets or homes in a neighbourhood, literally writing down the numbers of homes they think could be a fit. Even though they aren’t on the market, we contact the home owners one by one to see if they are interested in selling.
Just as there are buyers who don’t want competition, there are sellers who don’t want to go through the process of showing their home. It’s a lot of work but it has often worked out that our client found their home and didn’t end up in a bidding war.
Let’s look at it from the perspective of the home seller…
Using a multiple offer or ‘bidding war’ approach can be a great way to sell your home quickly for a great price. But it takes a lot of preparation and nerves.
First, your home must be immaculate and staged properly. This does not just mean decluttering. You need to go beyond staging, ensuring any necessary home imporvemets are done. Although it may take thousands of dollars to fix up your home, the return will be well worth it.
Potential buyers need to see that they can move in without any work needed. It also has to appeal to the widest range of buyers so take the usual staging advice into practice – perception is everything.
Get a home inspection done before you list the home. This will eliminate the ability for any buyers to use this a condition of their offer. It will also save any suprises that could make the deal go south.
Many agents will price a home way below market value. You want as many people to see the home as possible but you also need to balance the risk if you don’t receive offers. I recommend pricing just below but not beyond your comfort zone. It all depends on your situation.
You should also price below the mental thresholds of people’s shopping range. If you were going to price at $460,000, get it down to $439,000 below the $450,000 mark. Buyers usually set search parameters in $50,000 increments. If you are just above their max, they won’t even see it. If you are just below you’ll make your home available to another huge group of buyers.
Many home owners are afraid they will only sell their home for the list price and are reluctant to go a bit lower. If you don’t know what you’re doing, it could backfire. But if you understand the exact current market conditions (seasonality, supply, demand, comparables etc.) and the home is in great shape then you will be too.
You’ve been holding your breath for a week and now it’s time to tango. Offers can be accepted at your home or at the real estate office. Typically each realtor will come in and present their offer.
You can’t just look at the numbers. There are a lot of things to consider – close date, conditions, the size of deposit. Some of these things may be worth more than a few thousand bucks or a lower offer may be the more secure one.
You may select the top few offers and take a chance to ask the agents to go back to their clients and sharpen their pencils, but this can be risky…if they feel pushed they may walk away and you can be left with nothing. Tread lightly and don’t get greedy!
If you are going to play the bidding war game as a seller or a buyer, make every decision with comfort and without regret while considering your personal circumstances and goals. And make sure you get the research you need to make the best decisions possible and of course, work with agents (like us 🙂 who have the experience to guide you though every step.
Give us a call or email to talk more…416.699.9292 email@example.com
To read the full article in Toronto Life, click here.
Mark & The Team