Have you ever heard one of your friends or family members complain about not getting their dream home because of a “bidding war”? This is still happening in some pockets across the GTA and is often the result of a hot seller’s market. Here are some tips on how to win a “bidding war” in Toronto and the GTA :
1. Have your finances in order
If you are in a multiple-offer situation, it may be necessary to omit certain conditions, such as financing and home inspection. In this type of situation, it is important that you are putting in an offer within your budget in order to have the confidence that you’ll be approved for a mortgage.
2. Educate yourself
Talk to your Realtor and other experts to learn as much as you can about the state of the real estate market in your desired area. Understand what is currently driving the market demand, how many days homes are on the market for, current inventory and frequency of multiple offers. The absorption rate is probably the most accurate indicator of the current market.
3. Remove emotion
Purchasing a home in a hot market means that you may lose during negotiations. Getting emotionally attached to a home prior to a firm deal can lead to a feeling of frustration in the event that negotiation is lost.
4. Be realistic with the offer price
Let’s face it, a low-ball offer in a ”bidding war” is not going to have a chance. Be realistic with your offer price, but make sure that you are staying within your budget. In a hot seller’s market, it is very common for offers to come in at above the asking price.
Should I be worried about “phantom bids“ when I put an offer on a property? As of July 2015 homebuyers in Ontario have new protections against phantom bids. Any offer received by the agent representing the seller has to be kept on file for a period of 12 months which makes the practice of having a phantom bid to drive up the price of the property highly unlikely. Click here for details.
5. Be flexible with the terms of your offer
As mentioned above, if your offer is one of several that the seller is going to be presented with, try to make it as appealing as possible. It is not unheard of that the highest bidder doesn’t win the“bidding war”. You can still get the home with a slightly lower offer if you show flexibility on other conditions associated with the sale. Flexible closing dates and possibly waiving conditions on the purchase of a home, such as a home inspection and mortgage financing, make your offer much more appealing to the seller.
6. Exercise caution!
If you consider waiving the home inspection condition I recommend that you have an inspection done before the offer is presented to the seller. You may lose a few hundred dollars if you don’t end up buying that particular home, but the peace of mind you will get is priceless. If you consider removing your financing condition or status certificate review (condos only) make sure to do your due diligence prior to making an offer.
7. Have a deposit ready
There are several options as to when to have a deposit cheque ready. In the case of a “bidding war,” you’ll want to have a deposit to accompany your offer. Even though an accepted offer is binding without the deposit due to the good faith provision in Canadian contract law (see contract law case Bhasin v. Hrynew), it gives the seller additional assurances that you are serious. The typical deposit in the GTA is 5%, in the case of a “bidding war” more may be necessary.