With so much talk about bidding wars lately, it brought to mind thoughts of some of my past clients. Clients who have lost out on more than one multiple offer scenario; being left frustrated and burned by the nuances of Toronto’s real estate market along with the idea of having lost their ‘dream home’.
I’ve got lots of great stories about bidding wars where sellers have profited HUGE and where buyers have acquired amazing homes in the most heated multiple offer situations, but sometimes you just can’t win them all. Here are some tips to help you prepare yourself for what the dreaded bidding war entails:
STEP 1- figure out the property's value and what you can afford! Always get your financing in place ahead of time with mortgage pre-approvals where possible. Going into multiples, it’s also important to know the highest you’re willing to go before you walk away, and make sure you stick to that figure! Even though emotions get involved and sometimes the PERFECT house could be on the line, it’s never a good idea to step outside your financial comfort level. In today’s market, many homes are over and underpriced, but by analyzing comparables you can get a better idea of what the true value is. It’s that figure you should be using as a benchmark when determining your absolute maximum amount.
STEP 2– figure out the value for YOU! Ignore the asking price. Focus more on the property’s true value. If at all possible, never bid more than the true value of the property. If you happen to win the home and the bank completes their appraisal and finances you based on the true value, you will be expected to come up with the difference to make up the purchase price. This might be beyond the average homebuyer's means.
However, if you’ve been looking for a home for a year now and you’re always $30K under the winning bid, next time you better be $30K ahead. That deal you lost out on six months ago might now be a home worth $30,000 more. The point is that the market is ever changing, and so should your approach. Maybe it’s time to review your search criteria and make a few adjustments? This is where your Realtor can help by defining search parameters.
STEP 3- be prepared to WIN! There are lots of strategies for winning a bidding war. Here are some of the important ones:
– Don't underestimate the value of a clean offer. This can make all the difference when a seller is considering which offers to work with. Have your financing in place ahead of time, and if possible, go in without a financing clause. Consider forfitting other conditions on the offer for the sake of potentially gaining the upper hand AND saving money on the purchase price. I recently helped my clients to win a bidding war by coming in with a clean offer even though they were $15,000 away from the top bid. How do I know this? Because I also represented the seller. The other offer on the table might have been for $15K more, but the fact that my buyers came in with no conditions along with a certified deposit cheque effectively sealed the deal for the sellers. Ultimately, there will always be a little bit risk. Working with an experienced and trustworthy realtor who has your best interests in mind makes all the difference.
– Come in with a significant and certified deposit. A serious deposit is no less than 5% of the purchase price.This shows sellers that you have enough invested that you won't walk away from the deal. 5% also just happens to be the amount of commissions usually charged by the brokerage. Coincidence? Perhaps…
– When it comes to financing, its always a good idea to consult with an agent and mortgage broker that are working to put you first. Be sure that your broker doesn't leave financing and booking the appraisal to the last minute either, as you'll want to be certain you have time to find something better if need be. Here's where working with a Realtor who has a great team set up will help. Good Realtors will have at least 3 brokers that they can refer you to. Your agent and broker should be working together with regular communication from offer to closing.
STEP 4- Be prepared to lose. I know, just the thought can be emotionally draining, but if you truly prepare yourself for anything, you set yourself up to go into negotiations with a level head. And remember that regardless of how many offers might be in the mix, it's still just that: a negotiation between buyer and seller. Just because you're in a bidding war, doesn't mean that the seller has complete control!
Above all else, remember that sometimes winning is walking away. Don’t let emotions get the best of you… I know, easier said than done. Don’t feel regretful about backing down. Knowing that you handled it smart and didn’t play into over inflating the value of the property is something to hold your head high about!
In light of this advice, there still may be a few bidding wars in your future. Don’t be discouraged if you don't end up on top. The right property is out there and it will come to you. Your patience may be tried, but soon you’ll end up on top with the peace of mind that you made a fantastic financial decision.