How Do You Win a Bidding War?
Sometimes I mistakenly take for granted that buyers already know the correct strategy to win a bidding war.
I can't believe it's almost Halloween! Does anyone else feel like the last two months have been a blur? I feel like I was just wearing shorts the other day and now I'm rocking my favourite red hoodie everywhere I go. If you know me at all, you know that fashion isn't my thing so I tend to find a couple outfits that I love and will wear them over and over. And I'm cool with that :)
Actually, the last 18 months have been a whirlwind, and ever since people really started appreciating the need for more space while spending so much time at home, housing prices (around the world) have been shooting up. Condos in Toronto took a beating about a year ago but it's been a strong and full recovery since the clock struck 2021 and prices have recaptured their all-time highs. Rents are still lagging a little but I'd say they've recovered to about 75% of their pre-Covid levels. Just wait until people actually start going back to the office in full force. I'm certain rents will continue their recovery.
If you've tried to buy a house over the past 18 months (or a condo basically any time in 2021), you'll probably be familiar with what's known as an "offer date". Some people will refer to this as different things, like "holding back offers" or "setting up for multiples", and while I've never really liked the phrase "bidding war", that's effectively what it is. The broker notes on MLS (those comments that the public can't see) will say something like "Offers to be reviewed on Tues Oct 26th at 6pm". That's the trigger to us agents that we need to prep our clients for a bidding war. Side note: "Offer dates" have been commonplace in Toronto for as long as I can remember so it's nothing new, despite what the media tries to tell you. It's how the Toronto market has operated for years and it's simply a function of supply and demand. Buyers may not like it, but I'm quite certain that when these same buyers go to sell their places down the road, they'll also want to use this same selling strategy to maximize their sale price once they understand how powerful it is for a seller. But I digress...
In almost all of these "offer date" scenarios, the list price you see is basically just a marketing price. It's not a real price that the seller will actually accept, much to the frustration of a lot of buyers, and I often find myself telling my clients to just think of the list price as $1 and it's our job to determine what the property is worth to us and what it could/should sell for. I try to steer my clients away from the notion of a "bidding war" because that wording tends to turn buyers off, but call it what you will, the concept is the same.
So how do you actually win a bidding war?
I wrote a blog post a couple years ago about things you can do to guarantee you actually LOSE a bidding war (you can check it out here). It was a little tongue-in-cheek but I basically tried to outline all the things you shouldn't do if you actually want to win. Today, I'm going to take a more direct approach instead on the things you need to do to win:
1 - Have the highest price - I mean, this is obvious, right? 99% of the time, the highest price wins the bidding war. You may have heard stories about buyers writing heartwarming letters to sellers that resulted in them getting the house even though they weren't the highest offer. But there's often more to the story that we don't get to hear about. In addition to the letter, their price and terms were more than likely the most appealing to the seller anyway. The letter more than likely just make the seller feel warm and fuzzy inside. So make no mistake - price rules supreme.
2 - Don't have any conditions - This is where your agent really needs to coach and prep you in advance of offer night. Real estate moves very fast in Toronto. If you have yet to be preapproved for a mortgage and you're already looking at real estate, you're behind the ball. If you haven't gotten comfortable reading home inspection reports, your competition will beat you. If you don't have a lawyer lined up to review a condo status certificate on short notice, you may not get that condo you love. Sellers want, and expect, that the winning offer on offer night will be condition-free and that buyers will have done their due diligence on financing, etc before they put pen to paper. A lot of buyers will say to me on offer night that "I want to leave a financing condition on my offer to protect myself". And I'll simply respond with "well, I'm sorry but then we have no shot at this place." It's blunt but I don't like to set my buyers up to lose. Do your legwork with your mortgage broker well in advance so you can fire offers with confidence.
3 - Be flexible with closing - Give the seller what they want for their closing. It sounds simple but sometimes it's the closing date that can kill the offer. If you have a condo or house you need to sell after you buy your dream house in order to close on the purchase, make sure you work backwards and make sure it's doable to stay in line with what the seller is hoping for. Some sellers have already bought and need a very specific closing on their sale. Or maybe it's a vacant property and the seller needs a quick closing. And sometimes - sometimes - that's more important than money. I always tell my clients that I never want the closing date to be the reason we don't have the opportunity to offer on a property but oddly enough, that can very well be the reason. So make sure you've got your own logistics sorted out first!
4 - Have your deposit in hand - One of the first conversations I have with every new buyer clients is the absolute necessity to have their initial deposit (around 5% of their target purchase price) sitting in their chequing account. Not in an online back that takes 2-3 days to transfer, not in a brokerage account where you have to sell stocks first, but sitting in your boring chequing account ready to be withdrawn on a moment's notice. On offer night, pull that money out in the form of a bank draft, send me a picture, and I'll include it with our offer. More and more listing agents are requesting the bank draft to be delivered that same day as when the offer is accepted (not the next day as is typically customary) and this is one of those small logistical details that could actually cost you a deal if you don't play along.
5 - Be ready for the unexpected - Bidding wars can be unpredictable. The offer deadline may be 6pm and before you know it, 7pm rolls around and there are now five additional offers on the table that you had no idea about. Agents are notoriously last minute. Sometimes the situation requires some quick thinking so if you were sticking to your guns knowing there were only three offers when you decided on your offer price, maybe it's time to rethink. You don't always get a chance to improve your offer (it really depends on how the seller and their agent choose to proceed) but if you are given a window to do so based on new information, reevaluate the situation and act accordingly, and quickly. If the house you wanted all of a sudden has eight offers, vs only three, does that change your perception of the value of the house? Maybe it does, maybe it doesn't, but being prepared for anything will give you an advantage.
6 - Don't hold back money trying to get a deal - I see this time and time again. My clients will fall in love with a condo or a house, we're ready for offer night, they're willing to pay $1,200,000 but want to "start" at $1,150,000 and only go up if they have to. But here's the thing. You may not actually get that opportunity. Sellers and their agents don't have to ask buyers "is this your final offer?" They may look at the offers they have and if there's a clear winner, just pick one and call it a night. Imagine if you were willing to pay $1,200,000 for your dream condo but you decide to try to save some money and start at $1,150,000 and will only go up if there's a higher offer. But then you find out that the seller decided to accept another offer at $1,175,000 and you're out of luck. Game over. This was literally the scenario that almost happened to clients of mine a couple weeks ago. I call it "getting cute" with your offer, trying to hold back from what you are actually willing to pay. That can cost you your dream home and I've seen it happen a lot. So if it's worth it to you, you're better off going all-in right off the bat and not risk losing out on something you really want by trying to outplay the competition.
7 - Getting lucky should not be a strategy - I think this is where some buyers struggle. You may think, believe, and truly feel that a house is worth no more than the list price on offer night, so that's what you want to offer to see if maybe you'll "get lucky" and have it accepted. But it's super important to remember that the market dictates the price, not what you alone want to pay, and that the seller doesn't have to sell (more on that in #8 below). A house listed for $1,199,000 with five offers on offer night will not sell for $1,199,000. It's just not going to happen. So I will actually talk my clients out of making an offer on a house like this if they're not willing to go over asking by a fair margin because all we're doing is putting pressure on the one guy who really wants the house to go even higher than they might have originally just because of the added competition. In a bidding war situation my strategy is never "to try and get lucky". You want to put yourself in a position to actually win.
8 - Remember that the seller doesn't have to sell - I think one of the biggest misconceptions around offer nights and bidding wars is the assumption that the seller has to accept one of the offers they receive on their scheduled offer night. If you're the only offer on a property listed for $999k, and every comparable around says the place is likely worth at least $1,100,000, the seller won't sell for $999k. They may not even sell for $1,050,000. Even if they get 5 offers, the highest of which is unconditional for $1,075,000, the seller is still under no obligation to sell. Sometimes I point my clients to one of my older blog posts here where I tackle this exact situation. I always have the honest conversations with my buyer clients to explain that if the seller doesn't get what they think/hope/feel/believe they should get on offer night, they will simply relist the property the next day for what they feel is market value (ie, they will raise the price) and accept offers "at any time". I liken it to a poker game - Before offer night, we don't know what cards they are holding. We don't know how much they want to sell for, or what they think they could sell for, so buyers are forced to show their hand first. But if the offer night doesn't go as planned, the seller then shows their hand by putting out a new "real" list price to the world. Then buyers can make the decision if they want to play. I've found that once I explain that the seller has the option to simply reject all offers and relist at their goal price, it really brings home the concept that the "marketing" list price doesn't mean a darn thing and shouldn't even be a major part of the discussion when determining how much you should offer. Sometimes a seller just wants more than what anyone is willing to pay on offer night. And it's their decision at that point on how they want to proceed.
So there you have it. Some tips and tricks...well, actually more like advice... on how to win a bidding war. They're always stressful and oftentimes emotional, but the first one is always the hardest. They get easier over time, trust me :)
Have you checked out my previous blog posts?
Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)