Bidding Wars – The New Reality When Buying a House
If you’re looking to move to Toronto and need a place to live, you need to be prepared to go to war. Not a real war, a bidding war which can be a very stressful experience if you’ve never been in such a situation before.
However, it’s not as terrifying as the word war suggests. Here’s all you need to know about bidding wars.
When should you expect a bidding war?
To put it in simple terms, when there are much more interested buyers than offers on the market you can expect a bidding war. This happens in what realtors refer to as a Sellers’ Market. When the offer is limited, the sellers have the upper hand and they will make buyers fight, not with weapons, but with offers. Whoever makes the best offer wins.
Bidding wars are more common in certain areas. If you want to live in one of the best neighbourhoods in Toronto, be prepared for a fight.
How does a bidding war start?
That depends on the type of property that gets listed on the market. If it’s a really nice house and it is located in a good area, the offers will start pouring in the moment the property appears on the market. The bidding war is on.
In some cases, it’s the seller that actually sparks the war by setting a specific date to review the offers. In most cases, it’ s seven days from the date the house is put up for sale. You won’t have much time to think if you don’t want to miss the deadline.
How do you go about in a bidding war?
Basically what you have to do is prepare your best offer, what you can or are willing to pay for that property.
In Ontario, bidding wars are blind. You don’t get to know what other interested parties are offering. Only the seller and the realtors in charge of the sale are privy to that.
The only information you’ll get is how many offers there are, not how much money your rivals are offering. Every time a buyer makes an offer, their realtor must register it with the Listing Brokerage. All those signing an offer have access to the listing. The problem is that you only find out how many other people are interested in that property after you’ve made your offer. If your heart is set on that house, you’d better make sure that it’s your best offer.
How is the fate of the bidding war decided?
If the seller has set a deadline, or a ‘withholding offers’ time in realtors’ speak, once the time is up they will start looking at the offers. Usually the offers are analyzed in chronological order. Being the first to make an offer doesn’t mean anything. The seller will still go through all the offers.
If the seller receives an offer that meets their expectations, a winner will be declared. The losers will be notified through their real estate agents.
However, you can also expect the seller to retain the best two or three offers to see if he can get more money. Each buyer will be asked to improve their offer, but once again it will be a blind war. You won’t be told what your competitors bid in the initial offer, nor how much more money are they putting on the table. If the seller is satisfied with the second round of bidding, a winner will be declared and the losers will have to start looking for another house and prepare for another bidding war.