You’d be hard-pressed to find a real estate agent in a major Canadian market that hasn’t been involved in a bidding war this year. Limited inventory and depressed interest rates have made markets like Vancouver and Toronto extremely busy. As a result, buyers are often competing with multiple offers on the same property, something that’s likely to continue given the current seller’s market. The prospect of a busy summer has buyers and agents across the country preparing themselves for active listings and multiple offer situations, which is why it’s never been more critical to understand how to win a bidding war. Here’s a look at how to win a bidding war in a seller’s market, but before we begin, an important caveat.
These tips will help in most situations, but not all.
They say all is fair in love and war, but sometimes bidding wars just don’t seem fair. There will be situations when a qualified buyer will be willing to pay an extraordinary price for a property you’re interested in purchasing. In this case, there are no tips or strategies that will help you prevail, outside of trying your luck at submitting a solid backup offer should the deal fall through. If you find yourself in this situation, don’t despair. These aren’t typical circumstances, and you’ll be able to compete on the majority of homes in your price range if you follow the tips below. Read every situation as it comes, and know when to exit and look for other opportunities.
Come prepared
You wouldn’t walk into a war without understanding the area and drafting a battle plan, and likewise, you shouldn’t enter a bidding war without proper preparation. Empower yourself to win a bidding war by following these three first steps.
Understand the market conditions.
You should understand the market trends taking place in the community you’re considering making an offer in before making an offer and getting into any kind of competing situation. If you know what similar listings have sold for in recent months and what separates this particular property from past sales, you’ll be on your way to determining a fair offer that will compete.
Get your finances in order before you make any offers.
In a seller’s market, it’s imperative that you get pre-approved for your mortgage before you start placing offers on homes. Typically if multiple offers are being considered, subject to financing is going to be a non-starter. Sellers are much more likely to go with a buyer who has financing already in place, so set yourself up for success at the bargaining table and speak to a lender as soon as possible.
Work with professionals who can help you win.
Working with a trusted real estate agent and a mortgage professional is essential. An experienced real estate agent can help you win a bidding war more than anything else on this list, so don’t overlook your search for the right agent. Interview several agents, review testimonials from their past clients, and ask them how they approach negotiating with seller’s agents on your behalf.
Be competitive with your initial offer
If you want to win a bidding war, you need to start from a place of strength, and writing a strong offer puts you in the running. Work with your agent to understand what things are going for in the area and what the sellers expect to get when they review offers. If there’s competition, it’s typically only the top few bids that will have a chance to win a bidding war, so making a competitive offer out of the gate is necessary.
Talk to your real estate agent beforehand and set realistic expectations for your offer. There’s nothing worse than falling in love with a property and then realizing it’s going to go beyond what you can afford. Know that it may take additional dollars to secure a home in a seller’s market, so keep that in mind when you start your home search. You’ll find things less stressful if you start your search a little bit below your maximum budget, as this gives you wiggle room to negotiate up if you get in a bidding war.
Act quick, and be flexible
When you find a property you like, don’t wait too long to make a decision in a seller’s market – you’ll be surprised at how quickly offers are accepted in hot markets. Flexibility is key to winning a bidding war, and offering to move in quickly or in a few months can help sway a seller (depending on their preference). Have your real estate agent communicate with the listing agent and see when they’d be happiest to see a buyer take possession, and be clear that you can accommodate their wishes. It might seem small, but it can give you the edge in a close bidding war.
Work with a proactive agent
The real estate industry is built on relationships. Having a proactive buyer’s agent that will communicate in good faith with a listing agent can give you an advantage over another buyer. If you’re serious about a property and want to win a bidding war, your agent should clearly communicate your level of interest. A good buyer’s agent will work with the listing agent to get to the bottom of what the seller’s are looking for, both in terms of dollars and non-financial motivations. This communication can help you craft a better pitch to the sellers.
Know when winning isn’t winning
When it comes to a bidding war, some people get incredibly competitive. Don’t fall into this trap. Know your limits, and when a deal feels out of reach, consider writing a backup offer instead of going over the top. There are times when sales fall through, and writing a solid backup offer can give you a shot should the buyer’s back out unexpectedly. You can also try expanding your search parameters if you’re having trouble competing. Where there’s less competition, there are more chances for you to come out on top.
Bidding wars can be stressful in a seller’s market, but preparing yourself for the possibility of competition will give you an advantage and keep you feeling confident. Try these tips, and don’t let the stress of stiff competition keep you from purchasing your dream home.
By Justin Kerby