Take care in cancelling conditions and stick to your top offer
Know the selling prices of similar homes in a neighborhood where you might be in a bidding war.
What’s your advice on how to approach a bidding war?
Though stressful, bidding wars are a seller’s dream. After all, when multiple buyers try to outbid each other for a property, it means more money. It’s a dream that has become reality for some homeowners as competition for available homes, particularly in the GTA and parts of the province where supply is limited, has resulted in some properties selling for $100,000 or more over the asking price.
If you find yourself in a competing offer situation, referred to as a bidding war, and you’re willing to participate, understanding how they work. Having a game plan will help you avoid a nightmare scenario. First, this isn’t an auction and you’re not going to know where the leading bid stands so that you can respond accordingly. The only information that must be shared amongst buyers in a competing offer scenario is the number of offers that have been submitted to the seller, whether any of the buyers are represented by the same brokerage that is listing the property, and whether the listing brokerage has a commission agreement with the seller that may give that brokerage’s buyers an advantage.
Only the seller and their real estate agent get to see the details of the offers. If you choose to participate, you need to make your top offer and hope for the best. The seller can accept your offer, reject it or make a counter‐offer. Some will send back a select number of offers to be “improved,” looking for a higher offer — but this is not always the case. That means the
first offer you put in may be the only one you get to make.
It’s important to point out that sellers are under no legal obligation to choose the highest priced offer. Other factors may play a role, such as the size of the deposit, closing date and other conditions attached to an offer. For example, they may accept a lower value offer with an earlier closing date because they already bought their new home and can’t afford to carry both mortgages at once.
In the heat of a bidding war, you might be tempted to waive or strike out some conditions (for example, making an offer conditional on financing, home inspection, insurance, etc.) to make your offer more appealing. Be very careful about doing this because conditions protect you as the buyer. If you choose to waive or withdraw them, you’re taking a significant gamble. An accepted unconditional offer is a firm and binding legal contract. That means you’ll be on the hook if you end up having trouble securing a mortgage, or you find the home needs costly repairs once you take possession.
Having a game plan to guide you through a competing offer situation starts with crunching the numbers at the outset of your search to determine how much you can afford. Set a price limit and stick to it. That way, if you find yourself in a bidding war, you’ll know what you can comfortably afford. Don’t let emotion or competitive spirit drive your offer price above that mark.
When setting your budget, remember to factor in the extra costs that come with buying a home (legal fees, land transfer tax, utility hook‐ups, etc.).
Finally, work with your real estate agent to get a sense of prices in the neighborhood. How much have similar homes recently sold for? What are similar properties listed for now? This research may take some of the surprise out of the process by giving you an idea of what your target home may sell for.