Last year, we wrote a blog on real estate pricing strategies that agents use to sell a home. One popular strategy mentioned in it that’s used by real estate agents is the withhold offer strategy – that translates into a real estate bidding war. Of course, this is only successful in a seller’s market. These conditions (but not these conditions alone) give birth to what we call a real estate bidding war or a multiple-offer situation.
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In his book, The Art Of War, Sun Tzu introduces the world to the might of military strategy & diplomacy. Using real estate strategy & diplomacy, I believe anybody can win a real estate bidding war in Toronto. The housing market is an unpredictable foe. But armed with a complete arsenal of knowledge, expertise & strategy – you can win your next real estate bidding war!
In the rest of the blog, I quickly go over the basics of bidding wars: what they are, and how they work. We then move on to the rules and end with the good stuff – my top tips to help you win your next real estate bidding war!
Real Estate Bidding War: Process
What Are Real Estate Bidding Wars?
Essentially a real estate bidding war is when two or more buyers submit offers on a property at the same time, thereby having to compete with one another.
A real estate bidding war or multiple offer situation typically occurs in a seller’s market when the listing agent uses a holdback offer strategy. It can also happen organically when sellers receive more than one offer from multiple buyers.
In January 2023, nearly 74% of the houses listed in urban Toronto neighbourhoods received multiple offers in excess of the asking price. Bidding wars are pretty common in Toronto’s housing market as the competition among homebuyers is almost always high.
How Does A Real Estate Bidding War Work?
Sellers receive multiple offers from prospective buyers – either organically because of high demand or due to a holdback offer strategy deployed by the agent
An interested buyer is requested to wait until a specific date – typically five to seven days after hitting the market — to present their best offer. Often, the prospective buyer will take the week to preview the listing consulting with real estate professionals to come up with the right offer for the property. It’s the job of real estate professionals to do their due diligence while advising a client – helping them come 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 written, how much the other offers are coming in 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.
Real Estate Bidding Wars: Rules & Tips
Are Real Estate Bidding Wars Legal In Toronto, Canada?
Currently, there are no laws forbidding real estate bidding wars in Toronto, Canada. But slowly and steadily new rules & regulations are being introduced to protect homebuyers and sellers from unethical transactions. For example, from 1st April 2023, blind bidding is no longer encouraged and home sellers will finally have the power to share the final bid offers – should they choose to do so. The objective of this new regulation is to make the bidding process fair and transparent for all the participants in the real estate market. This is just one amongst many recommendations laid down by the liberal party under their proposed Home Buyer’s Bill of Rights. While it is ‘encouraged’ it’s unlikely to actually be put into practice by either buyer or seller.
How To Win A Real Estate Bidding War In Canada [5 Tips]
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.
Tip #1: Ditch the Conditions, Make A Clean offer
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 clean 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.
You may also want to consider a contingency fund if you forgo a home inspection as you may run into issues once you take possession. Toronto’s homes are typically over 100 years old and surprises occur.
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.
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.
Tip #4: End The War With A Pre-Emptive Offer
If you really, really want that property – ask your real estate agent to inquire if the home sellers are accepting pre-emptive offers. Pre-emptive offers effectively change the rules of the game. Also called a “bully offer”, you agree to pay a certain amount to the seller, and in exchange, you get to skip the line and avoid all competition. If you’re tired of losing out to competition offers and really want to win this time – go ahead, sometimes you just got to do, what you’ve got to do to win.
Tip #5: Discounted Agent Commission
Not so long ago, I got caught bidding in a ‘hot market’ as two of my clients were really interested in buying the property. The property had everything going for it and managed to get around 25 competing offers in a week. Instead of going the ‘highest bid’ route (which can get super expensive) – one of the buyers’ agents offered to discount their services to make the offer more attractive to the buyer & seller simultaneously. Guess what? That offer won. While it’s a great strategy and at first glance seems to be a win-win-win situation for all – the reality is that to benefit from the kick-back you’ll still need hard cash to make the purchase.
As luxury real estate brokers, we offer concierge-level services and as such we do not discount. We look at this as a testament to our abilities. Whether you’ve bought one property with us or ten we always go above and beyond to ensure your experience is flawless and that we save you money in the long-run.
Allow us to be the caretaker of your real estate portfolio. If you’re ready to start your home-buying journey, start searching for homes in Toronto here, or book a call with us to set up a customized home search.