Winning A Bidding War

bidding-warsWhen there is a huge demand for a house, there is usually a bidding war over the property.  The bidding war occurs when either a specific date and time are identified or when 2 or more offers are received on the same property.  Many buyers become discouraged after losing too many bidding wars.  Buyers shouldn’t get discouraged; they just need to think more strategically.  Bidding wars do test a buyers’ patience. 

So how can a buyer win a bidding war? 

  1. Become a Bully – I know in the age kids being cyber-bullied this sounds bad, but it’s not as bad as it sounds.  Delivering a pre-emptive offer, commonly known as a bully offer within 24 hours of the property coming onto the market.  This way most of your competition, and their agents, haven’t even had a chance to see the property yet.  Utilize the element of surprise here.  It goes without saying that a bully offer should not have any conditions such as financing or home inspection included.  And in most cases, the offer should come in at least $75,000 over the asking price to make the sellers consider taking your offer seriously.Doing a bully offer requires stealth preparation and the buyer’s really need to have their ducks in a row.  They must have seen at least 5 other properties to determine that this property is worth the extra effort.  They (and their agent) must be watching the new listings and go out and see them immediately after they have been uploaded to the MLS.  Finally the buyers must be comfortable buying a house without a home inspection or finance condition.
  2. Bid High – On offer night present your highest and best offer.  Never assume that the sellers will come back and ask for a second round of offers.  I always tell clients, when I contact you the next day after you have lost the house and I tell you what the eventual sale price is, what price will not piss you off.  As in when you hear the eventual sale price, your reaction should not be, “Oh crap, we would have offered that amount”.  A buyers reaction after they hear the sale price should be, “we would never have offered that amount”.  So they can feel somewhat better that they lost the house.Buyers think they are saving money when they don’t bid as high as they can right out of the gate.  Let me paint two scenarios for you:Scenario # 1 – House A is listed at $599,000.  Buyer A offers $650,000, Buyer B offers $675,000, Buyers C offers $710,000.  Buyer C then gets the house because their offer is very clearly above the others.

    Scenario # 2 – House A is still offered at $599,000. Buyer A offers $650,000, Buyer B offers $675,000, and Buyer C offers $685,000.  The offers are now so close together the Seller sends all offers back in the hopes of finding a clear winner.  On the second round of offers, Buyer A offers $680,000, Buyer B offers $705,000, Buyer C offers $725,000.  The sellers now choose Buyer C because the offer is significantly higher than the other offers.  In scenario 1, Buyer C came out swinging and blew the competition away so Buyer C won the house and paid $710,000.  In scenario 2, Buyer C chose to go in with a conservative offer.  Because it didn`t blow the competition out of the water, Buyer C then had to pay even more for the house as it went into a second round.  This scenario plays out in every multiple offer situation.  The only way to win the offer is to pay the absolute most that you can to blow the competition out of the way.  There is one caution however, you don`t want to bid so much for the house that your mortgage lender`s appraiser doesn`t appraise the value of the house.

You may think that I have convinced you to spend too much on the house but think about this real-life situation that happened to me.  There was a great house in 2007 in the Yonge & Eglinton area that I wanted.  I was one of 17 bidders.  The house was listed at $529,000 and I lost out to a bidder who was willing to pay $641,000 for the house.  Well of course I went home that night thinking, that guy was crazy to pay so much for the house.  In 2008, I finally found another house to purchase, on the same street.  I paid $639,000 for my house.  A few months ago, the house that I had offered on in 2007 came back on the market.  It was now listed for $849,000 and it looked as great as ever.  After multiple offers, it sold for $1,051,000.  And to think back in 2007, I thought the buyer of that house was crazy.  He wasn’t crazy and has had the last laugh as he made a 64% profit or $410,000 in seven years. 

As long as you plan on staying in the house at least 5 years, paying a little too much for the house won’t matter.  At the end of the day, you will have a great place to live.  Happy house hunting!!