How to win a bidding war
For every offer made on a property, add $10,000 to the list price, one agent suggests
By Sydnia Yu – Globe and Mail
When Frances Fitzgerald and Sean Deasy searched for their first home in the up-and-coming Leslieville neighbourhood five years ago, they were not aware that properties were often priced below market value to attract a large group of potential buyers.
It was a lesson they learned the hard way when they were shut out of four multiple-offer situations.
“We’d get all excited about a house and make an offer, only to realize that it went for anywhere from $50,000 to $100,000 above asking,” Ms. Fitzgerald says. “With every bidding war that we lost, our house budget went up.”
After a fair amount of negotiation, the couple, who had hoped to spend less than $300,000, paid $352,000 to beat out competing offers for a semi-detached property on Bertmount Avenue.
Though they spent more than they had originally planned, they recently put the house on the market at $469,800 and watched three parties fight over it. They accepted the highest bid of $521,000.
“There were three things we were looking at: the offer price; whether there were any conditions; and… the deposit,” says Ms. Fitzgerald. “But at the end of the day, the most important thing to us was the offer price.”
As she indicates, there are several factors involved in choosing a winning offer, but there are several steps that buyers can take when vying for a property in hot neighbourhoods, such as High Park and Bloor West Village or on the other side of town, in Leslieville and the Beaches.
For starters, people should ignore listing prices and determine a property’s value based on a comparative analysis of similar homes that have recently sold in the area.
Then, they need to put in their best possible offer, which is often much more than the asking price.
Some good advice is to set a spending limit that you’re comfortable with, since bidding wars are like blind auctions. Buyers submit a bid without knowing what others have offered. The highest bidder then gets prize.
You usually don’t get a chance to go back and forth in a bidding war, you have to go in with your best foot forward.
Recently, in the sale of a duplex in Bloor West Village, the listing agent worked only with the top three of nine offers. Listed at $625,000, the house sold at a $133,000 premium.
As a general rule of thumb, for every offer made on a property, add $10,000 to the list price, most real estate agents say. This means that if there are six offers, then $60,000 should be added to the asking price.
When a starting day is set for accepting offers, and your agent finds out that several will be submitted on that day, don’t be scared off — put in an offer anyway. People should submit an offer regardless of the level of completion.
It may seem daunting, but you never know the quality of those offers. Sometimes they have a price that may not be higher than yours or sometimes they have conditions that may dilute the strength of them.
Earlier this month, a couple beat out two other bidders for a house in the High Park and Bloor West Village area by offering 13% more than the asking price. They had learned a lesson in their first home-buying experience with another agent four years ago.
“We offered about $5,000 lower than what they were asking and the house ended up going for about $20,000 over,” they said. “It was a good slap in the face — or realty check — that if you want to play in this market, you’ve got to come in with some real money.”
They note that the market has really taken off since then. A semi-detached residence they recently looked at attracted seven offers and sold for a $102,000 premium.
Money aside, making a conditional offer — whether it’s based on getting mortgage approval from a financial institution or the results of a home inspection — can be a deal-breaker.
When you’re competing, put yourself in the sellers’ shoes, and say if you were getting 12 offers, you’re going to take an offer with no conditions. Any condition is a condition to change your mind.
This means that before starting a house hunt, buyers should get a mortgage preapproved so they know their budget, and have funds readily available so they can put in a deposit with an offer.
And a large deposit indicates how serious a person is about buying, especially if it is in the form of a certified cheque.
Once during a fierce bidding war involving a dozen parties, the seller accepted the top offer without a certified cheque. The next day the buyer regretted the purchase and backed out. You’re holding nothing if you’re not holding a certified cheque. If there’s a $1,000 difference between cheques, and one is certified and one is not… take the certified cheque.
Sometimes, real estate agents anticipating multiple offers may conduct a home inspection before listing a property. But if not, buyers can pay to have one done before making an offer.
Also, work with the closing date requested by the seller. They put that there for a reason. If you want 30 extra days, then your offer has to reflect that… to say it’s worth the sellers’ while to carry that property for another 30 days.
Last, but not least, buyers need to weigh the emotional cost of passing up a property that is overpriced.
Some real estate agents will coach their clients to get ahead of the market if it’s the house that they want and they’re really going to be happy in it. And if you outbid the next guy by $10,000, then you haven’t overpaid.
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