Listen to “What You Need to Know to Win a Bidding War” on Spreaker.
In this episode I take listeners through my favourite methods of winning at the bidding war game.
You’ll learn what a bully or pre-emptive offer is and how you can win them to get the home you want.
You’ll learn what you need to do before you compete in a multiple offer situation.
Transcript
Davelle : Thanks so much for joining me today. Today I’m going to be talking to you about how to win a bidding war. It definitely is a very popular topic today in the Toronto real estate market.
It’s crazy, lets face it. We have bidding wars for houses. Were sometimes you are seeing somewhere between 9 to 20 people, bidding on the same house. Everybody’s got to have it. It’s funny because it’s starting to happen with houses that you think, well they’re nice, but they’re not that nice. Some of these houses are on major streets even. The market has become so crazy right now, that people do have to bid quite high in order to get the home of their dreams, really and find a place to live.
One of the things I always suggest to clients in terms of how much they should spend on a house is. If I were to tell you tomorrow that you didn’t get the house. And you heard that, that house sold for the price of “X” what would you say is an okay number that you wouldn’t lose your shit over it, basically, and think oh crap, I would of been willing to pay that for the house.
Whatever that magical mystical number is, that’s the number I would say to people that they should be paying for a house. The price you are not going to get too mad at yourself that you didn’t pay that much for a house.
Generally right now in the Toronto market, houses are going between $200,000 and $300,000 over asking. I recently had a client say to me their budget was 1.5 million and I said “okay, so I’m going to send you some listing, but I want you to understand I actually only want you to look at the houses that cost up to 1.2 million. Please don’t look at houses that are 1.5 million, because I know that you are going to have to bid 2 or 3 hundred thousand dollars over your asking price. So I know that if your budget is 1.5, then it’s much safer if you look at 1.2 million. Or of course look at a house that is listed 1.4 or 5 that isn’t selling and sitting on the market right now”.
The other thing that we’re seeing in Toronto marketplace is bidding wars on condos. It use to be quite rare that people would set offer dates on condos. And now, because there is so little supply of condos on the market, we’re finding that people have to set offer dates for condos.
I recently showed a condo to some clients in the Midtown Toronto area. It had an outstanding terrace. It was listed around 450 or so. Well, it’s funny, it didn’t even make it to offer night. It got a bully offer, a bully offer on a condo. It ended up selling for 520.
The market right now is very crazy because there’s a lot of people that like where they live and so therefore they’re not selling where they live. That could be their condo or their house. Because of the limited supply, it’s really driving the market higher and higher.
I generally tell clients you have to be aggressive to get the house that you want. I know that people generally don’t like to hear that they are going to have to fork out that much money over asking. Unfortunately, that is what it takes right now to get the home of your dreams in the market. Because unfortunately I’ve seen people, let’s say last year’s market say, “oh no, this is too expensive. I don’t want to bid that amount of money”. Well, if they waited until spring. They would of had to bid at least $200,000 more. Just to cast the same house they were looking at last fall. Unfortunately the way the market is, is that people do have to bid huge amounts of money to get what they want.
One of the things people always want to know is, how can they win in this kind of market. One of the things that I would suggest is doing the bully offer. But, you can’t just do a bully offer on any old day.
There’s a whole math and psychology and critical thinking about this. For example, if a house came on the market on Monday and they’re not taking offers until the following Monday. You can’t just do a bully offer on that Sunday, or that Saturday. Because that house has now been exposed to the market for six days and people have seen it. Any decent real estate agent that gets a bully offer is going to automatically go out to every other agent who’s already shown the property, to let them know, “hey, there’s a bully offer”. So now you are effectively moving up the offer date.
The way to win that bully offer is, if that house goes on the market on Monday. You see it on Monday and you offer on it on that Monday. Or maybe you wait until the Tuesday morning or the Tuesday afternoon and then you offer on it. Because that way, fewer people have actually seen the house. There is fewer people who can bid against you.
This happen to me this March for example with some clients. I always pay a lot of attention to the MLS screen and exactly at what time houses get listed on the market. I saw a house that I knew was going to be their ideal house. It was in the Younge and Lawrence neighborhood and it was listed just under a million dollars, about $995,000.00 or $998,000.00.
I see it go on the MLS probably around three o’clock. I get the husband into the house at four o’clock, he loves it. Wants his wife to see it. His wife comes to see it around 5:30. We get her into the house, she loves the house. Now a few hours later, now we have a bully offer. We’ve decided that we’re going to offer on this house, right now. Before they’re taking their offers a week later.
The other advantage that we had was, it was Monday night. The first Monday after March break. I figured that people would be so busy dealing with the fact that they just got the kids back to school. They just got back from vacation. That they wouldn’t really be seriously looking at the market. And I was right. We offered on the house. By Tuesday at noon my clients got it because it turned out there was only one other person who had seen the house. They offered on it as well, but my client’s offer was stronger and they got the house.
That’s definitely something that people have to do if it’s a house that they really want. They really have to get aggressive.
The same thing is happening in the condo market. Even if the condo hasn’t set an offer date. I’m finding again, if that condo’s gone on the market, you really need to get in that condo, within the first five hours or twelve hours of it being in the market. Because if you don’t, everybody else has gone in to see the condo at the same time. And They’re going to offer on it faster then you can.
Right know it seems to be, if there is not an offer date on condos, it’s really all about speed and timing and trying to beat somebody else out in order to buy the same place that you want to buy. It’s very tricky.
Sometimes you do have those cases were there’s only two of you offering on a house. You’re going back and forth. Going back and offering more and more on the house. Sometimes the seller won’t take either offers.
That’s happen to me a couple of times. Were in my opinion, the sellers have been greedy. And that because they’re reading about these crazy ass bidding wars in the market. They feel that their house deserves that same bidding war.
Instead what they do is, after they can’t get the price of their house up high enough, they actually just pull it off the market and relist it at a much higher price. Because they can’t get the price of the house that they want. Which I think is crazy. Because you’ve now wasted everybody’s time. And making people think that this house was actually buyable and attainable for them. Then you’ve basically pulled the carpet out from under them. Which I think is very dishonest. I don’t like it when I see people doing things like that because they are in effect in my opinion quite greedy.
The standard bidding war. The standard bully offer. The standard multiple offer situation.
The standard multiple offer situation the way that it works is, house gets listed on Monday, Tuesday or Wednesday. You have about six to seven days to view the home. Then they take offers.
When they take offers, I would say, it’s better being done in an office verses being done at somebody’s house. The reason why I say that is that it’s better to remove the emotion from this particular, from bidding on houses. I find that it helps if it’s done in an office. If it’s in a house, everybody has a lot of emotion attached to it and tied to it. You are really trying to pull the emotion out of this and make it something more logical.
I highly recommend that the multiple offers take place at an office space. At an office space everybody essentially waits their turn. Goes in one by one. The real estate agents go and present to the listing agent and the sellers and tell them a little bit about their client. Then they walk them through what the offer is like. Then they go back out to the waiting room and everybody waits to find out who’s offer was higher or lower.
At that point the listing agent will come back and tell the rest of the agents “listen a couple of you are at the high end, so we are going to work with you guys. To see if you would like to offer again” Then we’ll tell the rest of the agents “you know what, your offers were not high enough. Thank you very much for offering tonight”. See ya later essentially. Then you wait until tomorrow morning to find out how much over asking the house sold.
In some cases unfortunately, the house sold for well over what you thought it would. I was in a situation in Leslieville, where the house was listed for $699,000.00. Essentially what happened with the house was that after we had looked at the offers, this house sold for $999,000.00. We were absolutely shocked.
What happen that particular night is that I guess the agent had shown up with this offer of $999,000. Wait, actually they didn’t show up. They emailed the offer in, which to me is even more outrageous. They emailed their $999,000.00 offer in and they didn’t even have a check.
Usually on offer night you always have to be prepared with a bank draft. Because if you don’t people don’t take your offer seriously. Even if you’re offer is the highest, in some cases they might not even take the offer. Because they don’t know if you’re actually going to follow through or if you’re going to bring in the check the next day. Or if you’re going to pull out and say, “Hey you know what? I changed my mind, I don’t want the house anymore”. Then it’s a huge problem for the seller.
We were quite shocked at the time when we were waiting. We didn’t know what the sale price was, but we were quite shocked that they were willing to take an offer were they didn’t even have the check yet.
Anyways, lo and behold, the next day I saw it sold for $999,000.00. The check came in, no problem. I was shocked. Of course, I always wonder, how is that house going to appraise because it’s fine and dandy for someone to spend a lot of money purchasing a house, but if the house doesn’t appraise. It’s going to be a huge problem for them. That’s part of what I say to clients too, is that you want to spend a decent amount of money on the house, but you don’t want to spend a foolish amount of money on the house. So that the next day when you talk to your bank and your bank sends over an appraiser, there’s this whole other conversation that has to happen. Were the appraiser decides the house isn’t really worth what you were willing to spend on it. That really doesn’t help anybody.
I have a lot of people asking me, “how can we correct this bidding war situation? Maybe we should have open offers so everybody gets to see what your bidding with”. I’m not sure that would necessarily would solve the problem. The other thing that people always say to me too is that “they would prefer having a live auction”. Again, so they can hear how much people are bidding and that way participate in purchasing the house.
My concern with having live auctions to purchase these kinds of houses is that, I believe people will get caught up in emotion of it. They’ll start to go, oh well if that person can afford to go higher, I should be able to afford to go higher too. I think they get lost in the emotion and the energy of the room of bidding on a house.
The one thing I do like about the current situation with the multiple offers is that if people do have to come up with more money to spend on the house, they are not pressured. They are not forced. They literally get to walk away, think about it. Call a mortgage broker. Call a banker. Call a parent. Call a relative. Call a friend. Call anyone and have a calm, cool, and rational discussion about should they actually spend more money on the house.
What I like about the current process is it lets logic play into it. They get to think about it. They don’t have to make a sudden rash decision. When you’re in a live auction situation. There’s no consulting with anybody. You’ve got to decide in 30 seconds whether or not your going to add another $10,000.00, $20,000.00, $50,000.00 or $100,000.00 to the bidding. I think that’s a huge concern to me. When people are thinking of going into live auctions for the real estate market. Because to me, then it really put the emotion into it.
I know people who say “Oh no, I’m not going to get carried away”. People will get carried away. And in fact I think that they will start looking around the room going, oh if that person can afford it so can I.
I think the market right now, with the multiple offer situation right now is safer for buyers. Even though they don’t want to believe it’s safer for them, but I do think its a little bit safer. Because now they have an opportunity to make a calm, cool, rational decision should they spend “X” more dollars on this house.
One of the situations I’ve been in as well with clients is that, you’re going into a multiple offer situation as so you need to be prepared. Which means, if you want to do a home inspection, getting that home inspection done before you put in the offer on the house.
Oddly enough I have been in the situation were a couple of agents have said “Oh no, we don’t want your client to be able to do a home inspection”. In one case they said, “Oh, well the sellers already done a home inspection for you”. Wrong.
The thing is that when a seller does a home inspection, that certainly does not protect the buyer. The buyer needs to be able to go out and get their own home inspection and make sure that the house has everything that they need. And they need to be warned about things that might be bad in the house, that they should know about. The seller’s home inspection is not going to give them that same kind of comfort.
I had one situation a few years back were the agent said to me, “oh you know, the sellers lived in the house for 30 years, it’s fine, your client doesn’t need to do a home inspection”.
In that case what I did was I told the home inspector that he was going to be my client’s “friend”. I told him, “don’t show up with your ladder, just show up with a couple of gadgets in your pocket, and you’re going to look like your my client’s friend and I want you to walk around the house and let us know what’s wrong with it”. Of course he did that. He brought in his little device that shows whether there’s knob-and-tube. And of course he plugged it into a lot of the plugs in the house, a lot of the sockets. And voila! Guess what he discovered? That a significant portion of the house had knob-and-tube too.
That was something really important for my client to know because now he knew that the entire house was going to have to get rewired. He was planning on doing renovations to the house anyway, but that’s something he would like to know going forward that, okay, the house has knob-and-tube wiring.
For those of you who don’t know, with knob-and-tube wiring it’s and old, old, old wiring system. There are some insurance companies that will insure a house that has knob-and-tube wiring, but the bulk of insurance companies will say, “if you buy one of those houses, upon closing”, they will say to you, “okay you have 30 days to get the knob-and-tube out of the house”. And so you need to know, if there’s that kind of gun to your head, that you’ve got to get that knob-and-tube out. It’s better to know upfront that the knob-and-tube is in there.
With that particular client we went into the multiple offers. A few nights later, I think there were 12 or so offers and of course we went in with our initial offer. They asked everybody to come back and improve. My client knew how much money that house was going to cost him to fix because he’s gotten a home inspection and knew about the knob-and-tube. He knew once he did the math, you know what if I’m going to have to spend “X” amount of dollars fixing it up. This house is only worth “X” to me. Therefore, I can only bid so much on this house.
It was a great thing that we did. I really believe in protecting my client and making sure that my client was able to make all the right decisions and we made all the right decisions for him. We walked away from that house that night and we went and bought something else probably about a month or a couple of months later. That he loved, that he was able to fix up and turn into a great property.
It’s really important to make sure that you do, do your do diligence before going into these crazy bidding wars. Talk to your mortgage broker. Talk to your bank and make sure that the pre-approval isn’t just a pre-approval. Oh, you can go spend “X”. Make sure that your bank or your mortgage broker had approved you so that you can actually go out and put in a justifiable offer on this house and not have a finance condition.
In the multiple offer situation right now in Toronto, you simply can’t have finance conditions or home inspection conditions in homes. That’s one of the reasons why I recommend for people, make sure you get the home inspection before hand. In terms of the banking goes, make sure you have all your financing locked down so that you know comfortably that you can go in and bid on that house, comfortably and everything will be approved for you.
The other thing is when it comes to multiple offers in a condo. You can’t have a finance condition again, you can’t have a home inspection condition again. However, when it comes to multiple offers with a condo you can actually have a status certificate condition. People are okay with that.
Now, you hope that the agent has pre-ordered the status certificate so that you have the status certificate ahead of time. So that people can actually have their lawyers view it before they have to put in an offer. In the case that they don’t. It is possible for people to put in an offer with that one condition of status. We know that the health of the building is good enough, so that even if someone does put a status certificate condition in there, that everything will be approved and they will be able to purchase the condo.
A status certificate, for those who don’t know essentially is the financials of the building. The status certificate is something that the lawyer gets. It basically shows perspective buyers and their lawyers, how much money is in the reserve fund. What expected repairs are coming down the road. Are there any increases in maintenance fees coming. Are there any special assessments coming to pay for additional things in the building. It really lets people see the financial health of the building. To make sure that they are moving into a building that’s on the up and up and everything is going to be okay.
You’d hate if for someone to move into a building and then the next month later be told, “oh, there’s gonna be a special assessment coming”. It’s really about litigating risk and protecting the buyer. Making sure they have all the facts up front about what they are about to buy. Whether it’s a condo or a house.
Other ways to win a bidding war, people talk about writing cute letters to the seller. I’ve tried that but I have seen this market, it’s quite competitive. So really the sellers just care about money, for the most part.
I have heard of a situation. I had lost out on a house back in the winter time, by $1000.00 One of the things that I discovered after the fact about why I lost out on the house by $1000.00 was there was some litigating circumstances for the person who got the house.
The person who got the house actually wasn’t the highest offer. However, I believe it was the female head of the household just had a serious accident and really needed the pool that was in the backyard of this home for rehab purposes. Once the sellers had heard her story and everything she was going through, they really wanted her to have the house. Which I completely understand. They did sell the house to her and her family. That’s one of the reasons why even though it wasn’t the highest offer, they got the house.
There are cases like that, but for the most part I’ve definitely seen that sellers just want the biggest check. Whoever got the biggest deposit check and the biggest final check, of course. Asking for offer price, would get it. And whoever has the right closing date.
Having the correct closing date is also quite important when it come to winning a bidding war as well too. I usually check ahead of time to find out what kind of closing date are the sellers looking for. You can tell if the property is vacant and nobody’s living there. It’s not rocket science but you can pretty much figure out that they are carrying the house and they don’t want to be carrying the house any longer. If you can close in two or three weeks you’re certainly going to be ahead of the game and that’s certainly going to be helping you winning the bidding war.
Other things you can do to win bidding wars is if you see a house that’s perhaps an Estate Sale or a hoarder lived there. You can add a clause in there to basically say that you can just take the house as is. As in you will be in charge of getting rid of all the items that are in the house. That will make the seller’s life easier. That will make their sibling’s or their family member’s life easier. They’re more apt to take an offer that makes their life simpler by someone who is willing to remove all the garbage, the debris, and everything from the house is certainly going to be the person who wins that bidding war. Just simply because they don’t want to deal with those kinds of items if they have to. That’s another way that someone can try to win a bidding war is to just do more work of the seller. Things that they don’t want to do themselves, really.
Another way to win a bidding war is to be flexible on the closing date. If you know the sellers haven’t found their next place yet or for whatever reason their closing date is up in the air. You can simply write a clause that says you give them the option with 30 or so days notice to extend or move up the closing date. If the sellers can see that your client is quite flexible in terms of moving around the closing date if they need to. It gives them the flexibility for them to think, you know what maybe this is the offer. Assuming the price is okay. That they should accept because they have some flexibility in terms of moving around the closing date.
So really, winning a bidding war is about giving the sellers what they want. It’s making sure it’s a clean offer. There’s no home inspection condition. There’s no status certificate condition, if it’s a condo. There’s no finance condition. You’ve meet their closing date. It’s either as soon as possible or giving them flexibility on the closing date if they don’t have one. Or it’s jumping in there with a preemptive offer that gives that seller all of the above. That’s another way to really win a bidding war.
In this competitive Toronto Real Estate market the best way to win the bidding war is to really be aggressive. Because this is the place you are going to call home. You might want to throw up a little bit in you mouth, once you get the house and you are aggressive. But once you move in, it will feel like home and you’ll be so happy that you made the decision to be aggressive to get that house.
Thanks so much for listening today.
If you have any questions of comments with other topics you’d love me to cover. Please reach out to me at develle@bosleyrealestate.com or on twitter @devellemorrison.
Thanks so much for listening. Talk to you later. Bye.