In our recent blog, Understanding Real Estate Pricing Strategies, we cover the different types of pricing strategies your real estate agent may use when selling your home. One strategy that is often used when the market favours sellers (aka a seller’s market) is to withhold offers. This strategy often leads to what is called a bidding war. So how does a bidding war work in real estate and what can you do to increase your odds of success?
HOW DO BIDDING WARS WORK?
A multiple offer situation, or bidding war, occurs when the listing agent uses a holdback offer strategy. What this means is that any interested buyers are asked to wait until a specific date — typically five to seven days after hitting the market — to present their best offer.
This gives buyers time to preview the listing and have their agent do their due diligence on coming up with an appropriate offer price, knowing they will likely be competing with other buyers.
On the offer day, buyers will register their offers via their real estate agent. While you will be notified how many other offers are being registered, how much the other offers are coming in at is kept a secret. This allows sellers to review a range of offers.
The listing agent and buyer agents will likely be in negotiations throughout the offer presentation to encourage bids that may be close to one another to up their ante, so to speak.
HOW TO WIN A BIDDING WAR?
Since bidding wars are blind, you’ll never really know what type of offers you’re competing against but there are some key tactics to increase your odds of having your offer accepted.
Bidding War Tip #1: Ditch the Conditions
In a bidding war, choosing to waive conditions like status certificates or home inspections can prove to the seller you mean business. For example, if the seller receives two offers for the same price but one is conditional on a home inspection, while the other doesn’t have any conditions, the latter is far more attractive and is likely to win.
If you decide to make a firm offer, it’s important that you are absolutely sure that you can move forward with your offer. For instance, if your offer is accepted and your financing falls through, you will lose your deposit.
Bidding War Tip #2: Have Your Deposit Money Ready to Go
If you’re serious about buying, having your deposit funds ready to go ahead of the offer date is essential. A deposit of 5% of the purchase price is the norm in our marketplace and if you have to move the necessary funds from one account to another, this may take a few days.
When you present your offer, having a picture of your bank draft included tells the seller that you’re serious. Should your offer be accepted, the deposit money is typically required within 24 hours.
Bidding War Tip #3: Don’t Low Ball
When listing agents withhold offers, they will generally price it slightly below fair market value to set the stage for a competitive offer situation. If you are hoping to win a bidding war, making an offer that is $5K or $10K over the list price is unlikely to be accepted. Your real estate agent will work with you to come up with a strategy to ensure that you are putting forward the best offer.
When you find a home you love and are serious about making an offer, it’s good to determine what that particular property is truly worth to you. Discuss your absolute maximum budget with your Realtor, so you know when to draw the line should your emotions get involved. While your first offer doesn’t need to be at the top of your budget, having a top budget number in mind allows you some room to improve on your offer should you need to. Establishing these boundaries will help keep you on track.