I recently told The Financial Post for its article, "Housing Market Rebound Outstrips Expectations," that I believe any radical upward movement in home prices will be met with a pullback in demand because the economy is still not strong enough to support major increases.
That said, there are a few hot pockets of real estate in Canada - large, urban centres - that are seeing bidding wars re-emerge, not exactly par for the course less than a year into a hard recession.
With a relatively low inventory of homes for sale in many markets, and strong buyer interest due to good mortgage rates and government incentives and general buoying of confidence in the economy, real estate activity remains strong. What that has created, in some cities such as Vancouver and Toronto (mostly in downtown neighbourhoods), is not enough homes of a certain desirable price range to meet the demand - hence bidding wars.
Prices are not jumping up overall as a result, though. These multiple-offer scenarios do not resemble pre-recession bidding wars wherein the final sale price would end up inflated.
Good for the Seller?... Maybe
A bidding war should be great for the seller, but don't assume it will be. The Toronto Star wrote recently about how to win in bidding wars as a seller, including the advice to:
- Ask potential realtors how many multiple offers they have worked on in the past; call one of their past clients to see how that went
- Look carefully at the Comparative Market Analysis done by each realtor. This report will show all the homes similar to yours that are for sale in your neighbourhood, as well as details of what similar properties have sold for in the past three to six months
- Visit some of these properties yourself to see whether there are any differences in the improvements inside and outside the homes, as well as other advantages, i.e. does the home back onto a park or ravine?
Are Buyers Overpaying? Not Necessarily
Buyers are not necessarily overpaying for a property when they're in a bidding war these days. In many cases, sellers are listing their homes at 5 - 10 per cent below market value - generating interest among several buyers - who then bid up the property to a final sale price that's close to, or slightly higher, than the actual market value. Unlike the boom times, many of the bids are not going over the asking price.(For example, in 2007, at the peak of the market, one Toronto Beach-area home sold for more than $600,000 over asking price.)
If you do find yourself in a bidding war, here are some basic tips to succeed, as suggested by HGTV - although I am not so sure about their analogy that "bidding wars are a lot like gambling — the stakes are high and a lot of luck is involved."
You should never gamble with what is likely your largest asset. I prefer the advice of this real estate blogger, who says if the number of bidders reaches double digits, "walk away...The truth is you should never want to win a bidding war when you’re competing against 17 other buyers because the winning offer is almost always going to be far above the true value of the property."
Have you been involved in a bidding war either as the seller or buyer? What was your experience?