5 Things to remember in GTA bidding wars
It is becoming harder to avoid a bidding war in today’s real estate market. For buyers, be prepared and for sellers, try and ensure that the bidding war process is done in good faith. Here are 5 lessons to remember, whether you are buying or selling, to increase your chances of success:
1. What should I do when the seller is “holding back” offers for 3 days? Answer: Sellers should consider making a pre-inspection report available to buyers. This will likely result in an increase in “clean” offers, without conditions. However, buyers should still consider their own pre-bid home inspection. This way you can protect against finding unwanted surprises after closing.
2. Is it ok to present a bully or pre-emptive offer? Answer: There is no harm in offering to bring a bully offer. The seller does not have to consider it. In addition, the seller can ask how much it is for before agreeing to consider it. The buyer does not have to give this information if they don’t want to. Even if the seller does not wish to consider, you will be sure to be contacted if the seller changes their mind before the bid date arrives. You basically have little to lose by doing this.
3. What happens if the bank thinks I paid too much? Answer: This is happening more than you think. Do not get carried away in any bidding war. If your lender thinks you paid too much, they will likely reduce the amount of your loan. However, you will likely not be able to cancel your purchase if you have already waived all conditions or presented an offer without conditions, based on any mortgage pre-approval. In order to protect against this, either make the deal conditional on financing or always have at least 5-10% of an extra down payment in reserve, just in case your lender thinks you paid too much.
4. Is there an advantage to buyers who go directly to the listing salesperson, asking the listing salesperson to represent them as well? Answer: Although many buyers believe this to be true, it usually does not work out that way. Most listing agents will want to ensure that the bidding war process is conducted fairly, to encourage more buyers to bid. As such, some will have another agent in the office represent the buyer or use the office manager to present all offers to the seller. Others will ensure that all bids are sealed before the presentation to the seller, to make sure that no buyer is permitted to see the contents of any offer before the seller. Remember, when the process is fair, you get more bids. More bids also means more money for sellers.
5. What if you are suspicious that the listing salesperson does not have another offer? Answer: use the following bidding war clause: “This offer is being submitted on the basis that it is part of multiple offers. If the seller receives no other offer by 10 pm, the seller or the seller salesperson will notify the buyer or the buyer salesperson and the buyer will have 1 hour to revoke or revise their offer. If the seller accepts the buyer offer, the seller will provide, within 24 hours, the name, address and phone number of the salesperson and brokerage company that submitted the competing offer.” In this way you can verify before you pay any deposit that the seller really had another offer. RECO is introducing a new process starting July 1, 2015 whereby every listing brokerage will need to keep a copy of every offer received on any property for a period of one year, whether or not it is accepted, to try and avoid the same result. By understanding how to properly prepare for bidding wars, your chances of success will increase, whether you are a buyer or a seller.