Toronto Real Estate: How to play safe during bidding war
Real estate markets in Toronto and Vancouver are still red hot with bidding wars driving up prices, mainly for detached homes under $1 million. One reason is that listings are in short supply.
In at least one case, I know of, more than 20 offers were received and in others buyers are paying tens or hundreds of thousands of dollars over the asking price. What’s worse, many buyers are putting in offers without any conditions, hoping this will help them clinch the deal.
In this kind of market, buyers can still protect themselves.
Don’t bid without an inspection: In an environment of bidding wars, odds are that you will lose up to five times before you get the house you want.
Even if you make a bid without a condition, the home should be gone over by a home inspector before the bid. This can get expensive, since the average inspection report costs between $350 — $550, depending on the size of the house.
As such, you may pay up to $2,500 in inspection fees before you get an accepted offer. In my opinion, when buying a million dollar property, this is a worthwhile investment. I have heard too many stories of people who bought without an inspection, only to discover major problems later.
Interview a few inspectors first: Doing so means you’ll get an idea about what they look for when inspect a home. You may also be able to make an arrangement whereby if they do multiple inspections, the costs per inspection drops. The main things to watch for are the age of the furnace, roof, water penetration issues and the wiring. The inspector will also look for cracks, slopes in the floors and doors that do not close properly, which all could point to potential foundation issues.
Also read: Think carefully before suing your neighbour1
The five bidder rule: I would consider backing out when there are more than five bidders on a home. You will likely seriously overpay for the home, based on the irrationality of the other bidders. Even if you win, there may be problems financing your purchase. Just because you may have qualified for a million dollar home, if your lender figures you paid too much, you will not get the loan you expected, which may result in your not being able to close your deal.
Inspections done by sellers: Some sellers have their own inspections and make the report available to buyers. It is dangerous to rely on this and not conduct your own. These seller’s reports usually come with a disclaimer that it is for information purposes only, so you won’t be able to sue anyone after closing if the information turns out wrong. You would have to prove the seller actively concealed major defects.
The 10 per cent effect: Foreign investors continue to love Canadian real estate as a safe haven. With the fall of the Canadian dollar, our houses just got 10 per cent cheaper in U.S. dollar terms. The focus tends to be condominiums, so don’t expect a crash in the condo market any time soon.
When you are looking for a home, even at these prices, make sure you are close to public transit, and have good amenities around you. You are not a stock day trader, buying a home and selling it shortly afterwards for a quick profit. If you are buying for the long term and can afford the payments, you do not have to worry about any changes in the market or in interest rates — if you lock in your rate for an extended period.
Even when those around you are going crazy, be prepared and you can be successful, even in a bidding war.
More real estate articles by Mark Weisleder2
Mark Weisleder is a lawyer, author and speaker to the real estate industry. You can contact Mark at firstname.lastname@example.org