It’s no secret that this year has been difficult, to say the least. But no one could ever have predicted the real estate records that were about to be set even despite the global pandemic putting us all in quarantine and lockdown. These records didn’t just hit Canada’s largest real estate markets (we’re looking at you Toronto and Vancouver), but they also spread to the suburbs where, what was once an affordable place to buy a house, soon became number-crunching cities. While this may have kept the economy healthy, it left many first-time buyers or those looking to move outside big cities disappointed that they weren’t able to land their dream home because of full-blown bidding wars. Bidding wars are more common than ever before in all of these seller’s markets due to the supply and demand issue, meaning there are more people looking to move than there are homes for sale. Homes for sale can have multiple offers and sellers are looking to make their money back on their original investment.
None of us want to actually deal with a bidding war. They can be stressful, and make us spend more money than we intended, which, during COVID-19 times, is risky and not even an option for a lot of people. This is why we have some tips for you when it comes to winning a bidding war on a house you really want without going over-budget.
Winning a bidding war 101
Here are some things you and your real estate agent can do to help you win a bidding war so you can score the house you really, really, really desire:
1. Know your budget and stick to it
We know it can be hard to stick to your budget during a bidding war. After all, another buyer is going to try and outbid you, but that’s why it’s better to play it safe than sorry in terms of your financial situation. After getting a mortgage pre-approval, the bank is telling you how much house you can really afford, so, while you may be mentally ready to make a higher offer, your bank account may not be. This is why you should also become familiar with the market conditions (or have your real estate agent explain them to you). Don’t make a higher offer on a house that’s not worth it. You want to be sure you’re making the right decision. It’s hard to find the perfect home, but doing research on your financial situation can also set you apart from the pack. You may have the funds for a down payment, or you may be qualified for financing through a mortgage. When working with financing, it’s crucial to have a team of professionals guiding you. A mortgage broker can do wonders for someone who is considering financing and will find a way to work with you on multiple fronts to help you in your journey toward homeownership.
2. Teamwork makes the dream work
a team of professionals backing you up and communicating with the seller’s agent always makes the home buying process much easier and can give you the upper hand. A team can consist of your real estate agent, mortgage broker, and real estate lawyer who know how to work hard on your behalf, especially when it comes to competing offers and closing conditions. These professionals will have your back and will pay attention to what is said in contacts. Having a team of professionals also says that you mean business and are able to provide a buyer with the guidance they need at an affordable price.
3. Have your pre-approval form ready
The seller of the home is going through their own list of challenges too, including which offer to settle on. But in order to make their decision easier, you can show the listing agent and the seller your mortgage pre-approval form that you actually received from the bank. Most sellers will expect that the buyer will have one but not everyone will, so you can increase your chances of the seller going with your offer by proving you’ve done your due diligence and that you can for sure afford the home.
4. Consider waiving your contingency clauses
A contingency clause is something that the buyer has offered and the closing of the sale won’t take place until that unconditional offer has been met, for example, a specific move-in date or a requested inspection contingency. Waiving your contingencies says that you have the sellers back and will work with them to do what they need to get things done.
Sellers don’t always like contingencies, so if there are multiple offers, they may feel more inclined to go with the offer that doesn’t have any contingencies. In order to increase your chances of sealing the deal on the home, you may want to consider waiving these contingencies but do so with caution. Consult with your real estate team to determine if this is a risk you should take.
5. Get your cheque book ready
This won’t apply to everyone, but show the seller you mean business by having the down payment deposit ready (or have the physical cash). Sellers want to see that you want to purchase their house and having your down payment ready can increase your odds of being able to walk away from the transaction as a homeowner. Having cash in your back pocket will help you get noticed and stand out among competing offers. Having the full purchase price ready is also beneficial for buyers who don’t want to take a mortgage out for a property. Keep in mind that when you do make an offer, more often than not, it will result in a bidding war. But having the full deposit ready to go allows new buyers to make a splash and show they have the money to make sure they win a bidding war.
6. Equip yourself with an escalation clause
Escalation clauses allow the seller to know the increment of money you’ll increase during a bidding war. You can choose to go up by x amount of dollars each time and also set a limit of how much money you’re willing to pay to win your bidding war. Property price is soaring at a fast-pace and knowing how high you’re willing to go helps you assess and tailor your initial offer.
This also lets other buyers know what your breaking point is and how to get you out of the war, so it really is a catch 22. But having an escalation clause allows you to show the seller you’re serious and willing to up your offer. Working with a realtor can make a huge difference and really help when buying in seller’s markets and creating an escalation clause that works for you and your budget.
7. Don’t skip the inspection
Typically, the last thing you think of when viewing your dream house is a home inspection. But getting an inspection before paying a deposit or even making an offer can change the amount you’re willing to pay or how much you actually want to purchase the property. Inspections give the buyer the upper hand when purchasing a home because it gives the buyer an idea of how much any potential renovations could cost. Home inspectors have your back and want to make sure.
Even if you’re not entering a bidding war, you need to get an inspection for a home you’re considering buying. A home inspection says more about the home sellers than you. You’d be surprised at what you may find out during an inspection, but you can always use it to shape your offers. A home inspection is typically unnecessary in new homes but can help you decide whether that historical farmhouse is a practical investment worth your cash.
8. Establish a personal connection with the seller
This might seem obvious, and won’t work for every seller – but creating a personal connection with a seller can go a long way. They’ll get to learn about the person who will be living in their former home and allows them to feel comfortable with who they’re selling their property to. If you spend time getting to know the seller one-on-one it can be a great opportunity to learn new things about the listing that may not have been mentioned before. It can also give you an edge when you try to win a bidding war.
You’d be surprised with how empathetic some sellers are. Letting somebody know why you want to buy their home says a lot about who you are as a person. It might even help you make an offer they can’t refuse. Sellers also generally pick the buyer they know, which means that you might not have to pay top dollar for a listing simply because you’re friendly with the prior property owner.
9. Offer earnest money
Good-faith money or earnest money is when a buyer puts down a portion of the deposit in good faith. This helps secure the deal and allows the seller to secure the deal while in escrow. By offering good-faith money, you’re showing that you’re serious and committed to the asking price of the house. These payments are only 1 to 3 percent of the asking price or your offer. When needed, good-faith money can be refunded in certain circumstances if the buyer chooses to pull out before the closing date.
Win the real estate game
Whether you’ve just started your journey into the Canadian real estate market, or you’re in the process of making offers and trying to win a bidding war, these tips are fantastic ways up ensure you have a solid understanding of what you’re getting into when considering entering the housing market. Working with professionals in the market can help you get the property you’ve been looking for at a price point that works for you.
You may not win a bidding war the first time you try, and that’s okay. You’ll find your dream home soon enough and when you make that initial offer, you’ll feel when it’s right. Talk to your realtor to learn about how to win a bidding war and what type of offer you should put in for a specific home. The housing market is thriving right now, so utilize these tips to help navigate you through etiquette that comes with participating in a bidding war.