With housing costs booming all around the country, prospective Canadian homeowners find themselves competing in real estate bidding wars. Since houses are in high demand, real estate bidding wars unfortunately don’t seem to be going away any time soon. In addition to causing frustration for prospective buyers, real estate bidding wars can be a major source of disappointment and can cause you to overpay for your home. However, if you’re careful, it’s possible to avoid engaging in intense bidding situations. If you do enter into a real estate bidding war, a few strategic decisions can help to maximize your chances of winning and soften the impact on your wallet.
How to win a real estate bidding war
First, let’s clear something up: there are two different versions of “winning” in the current housing landscape. The winner in a real estate bidding war is one of two people: the one that gets the house or the person who gets the best deal. After all, if House A sells for $1,500,000 but the near-identical House B sells for $900,000 a week later, you’d be better off waiting for the second property. Ideally, when looking for a house, you’ll want to strike a balance between the two. You probably don’t want to outbid by $600,000, but you don’t want to strike out on 30 houses either.
When you’re looking for a property, it’s a good idea to consider whether or not a home will likely attract a bidding war. If you can, stay away from competitive properties, especially those that might trigger a bully offer. But if you do engage in a bidding war, it is still possible to win without significantly driving up the price; it’s just much harder to do.
Look at a few homes to get a sense of the market
As you begin to prepare for your home-buying journey, you might want to look at a few properties in your neighbourhood just to get a sense of the local real estate market. In addition to listing prices, it might be helpful to track which properties get lots of offers and how much they sell for. This information can better prepare you for engaging in your own bidding war since you’ll have an idea of whether or not a property is truly worth fighting for.
Stay calm when viewing houses
When you’re looking at different houses, it’s easy to become emotionally attached. After all, this is a big step in your life! You’ve worked hard to save up a down payment and become financially secure, and now your efforts are about to pay off!
The first thing to do is to remain emotionally detached. Sure, the backyard might be great for your toddlers to play in but becoming too emotionally attached to the house is a recipe for disaster. By raising the emotional stakes, you’ll be more likely to engage in a risky bidding war and overpay for the property. It’ll also be tough to make objective decisions if a bidding war does break out and adds immense pressure. Although it’s tough, try to stay as level-headed and objective as possible when viewing homes.
Work with an experienced real estate agent
Even if you do research on your own, a real estate agent will still have more experience with winning bidding wars. They can advise you on strategies, let you know when to walk away, and likely have stronger negotiation skills than you do. While you don’t necessarily have to hire the most expensive real estate agent, picking someone who knows what they’re doing will drastically increase your chances of buying your dream home.
Come prepared with a pre-approved mortgage
Before you begin to submit offers on houses, make sure that you have all of your papers in order. Ideally, you should already have a pre-approved mortgage and only stick to viewing houses within budget to avoid disappointment. Your mortgage should also have a low interest rate to minimize future financial strain. You can compare Canadian mortgage interest rates.
By only submitting offers on houses that your mortgage can comfortably cover, you minimize the risk of the seller passing over or hesitating to accept your application. Similarly, you should avoid anything else that might give the seller cause to doubt your offer. Even though a slight hesitation might not seem like a big deal, it gives other prospective buyers a chance to submit their offers, potentially leading to a bidding war, a higher price tag or costing you the home.
Avoid homes that aim to start bidding wars
Whenever possible, try to avoid houses that encourage bidding wars. Although a bidding war can occur over any property, realtors use certain tactics to drum up intense competition. In addition to competing for the property, bidding wars also cause buyers to pay significantly more than they otherwise would have.
If you’re looking to avoid an intense bidding war, you should stay away from properties listed under market value as they inevitably attract lots of attention. However, listings at market value may also cause a commotion depending on the desirability of the property. Additionally, properties entered on a Multiple Listing Service (MLS) or in a realtors’ database get more views, again drumming up competition.
To avoid a bidding war, consider looking at properties listed above market value. The higher price tag attracts less interest so any bidding wars, if they even occur, will be relatively tame. You should especially keep an eye out for properties that have been on the market for a long time. Although there is a chance that they haven’t sold because the owner does not want to sell at a reasonable price, you might luck out and find a property that someone is eager to finally unload.
Consider appealing to the seller’s emotions
If you’re planning on staying in the house for a long time, consider writing a letter that explains your situation to the seller. If you have a young family, let the seller know how happy your children would be while playing in their backyard. Have you recently retired? Explain that you will spend the rest of your life in the house and love it. Whatever your situation may be, creating a human connection will increase the odds of the seller picking your offer over a sea of generic applications.
Submit your best offer… on one property
If you’re looking to buy a house in an area that’s very competitive, resist the temptation to submit offers on multiple properties at the same time. After all, you’ll be more likely to win at least one of the bidding wars, right? Well, not exactly. First, in some regions, an accepted offer is legally binding. You’re gambling on that you will lose some bids. That is not a great way to start your home buying journey.
If you cannot stop yourself from submitting multiple offers, be sure to research any local laws surrounding deposits and rescinded offers very carefully. You may want to hire a lawyer to ensure that your information is accurate. Again, submitting multiple offers without proper research is a very big gamble.
In regions where you can rescind an accepted offer, you’ll still need to provide multiple deposits. If the seller accepts your offer, the deposit generally goes towards your down payment. If someone else gets the house, you get your deposit back. However, if you decide to rescind your offer, you may have to go through a lengthy legal process to get your money back. Submitting the paperwork to buy a house is already stressful enough; adding a simultaneous stressful, needless legal process on top is not wise.
Additionally, sellers use deposits to determine whether or not a prospective buyer is serious about their offer. If you split your deposit money between two offers, you won’t be making a good impression. In a real estate bidding war, the seller can select someone with a bigger deposit. To maximize your chances of winning a real estate bidding war, it’s best to simply put a larger deposit on one home.
Avoid conditional offers
If you’re placing an offer on a property that’s extremely popular and will likely prompt a bidding war, you should think twice before submitting a conditional offer. In some cases, conditional offers might be necessary, especially if the house looks to be in poor condition or if it’s located in an area that frequently floods. After all, you wouldn’t want to buy what seems to be your dream home only to realize that unexpected renovations will turn things into a nightmare.
However, you should know that if a seller has to put in more effort to select your offer, there’s a greater chance that they will go with someone else. On the flip side, if your offer is not conditional, you might win the bidding war over someone who has offered more money but is requesting an inspection. Ultimately, it’s a gamble either way. A house inspection might reveal something important, but there’s also no guarantee that forgoing a conditional offer will win you the house. However, it’s important to keep both options in mind so that you can make an informed decision while submitting your offer.
Stay on top of the bids
As much as possible, try to keep an eye on your competition when in a bidding war. The information that realtors can provide varies from province to province. For example, Ontario realtors can tell you the amount of bids but they cannot disclose amounts. It’s still important to keep up with things as much as possible. Although a competitor submitting a higher offer is generally bad news, you may be able to counter it if you act quickly. However, try to stay as calm as possible. It’s easy to give in to your emotions, and make an outsized bid.
Play the long game
Unfortunately, you probably won’t win your first bidding war, especially if you’re competing with lots of prospective buyers. The housing market is very hot at the moment so it can be tough to crack through, especially if you’re on a budget. Yes, it is discouraging but it’s important that you stay the course and not get emotional. Expect the process to take a few tries and know there’s nothing wrong with that. At this point, winning a bidding war is a mix of strategy and luck, though things are improving so you should be able to crack through soon.
On a similar note, don’t be afraid to walk away if the bidding war gets too high for your budget. It’s easy to get caught-up in the process. Just remember that but overbidding can strain on your finances for years to come. It’s far better to bid on the next house, which may have less interest, no bidding war, and a lower price tag, than to overextend yourself and overpay to win a bidding war.