How To Avoid a Bidding War When Purchasing a Home
In an excited real estate market like Toronto and Vancouver, a lot of common sense gets thrown out the window when it comes to buying a home. Even in a more stable market it’s not uncommon for two or more people to decide they absolutely must have a certain home, and that’s when a bidding war can start.
In a seller’s market, encouraging a bidding war is just one of many strategies employed to get the highest price from your buyer.
The Easiest Way To Avoid a Bidding War
This is kind of like asking the easiest way to avoid getting drunk or pregnant: Just don’t participate! A house is probably the largest purchase you’ll ever make (except for your next, larger home), and it’s amazing how easy it can be to go up by a “small” $20,000 to $50,000 on the asking price to secure your ‘”dream home”. Of course, on any other purchase, this would be insane. No one would walk around a car dealership and think “well I only came for the used Civic, but that BMW 7-series in the corner for $40,000 extra really caught my eye.”
To protect yourself from this kind of emotional purchase, simply have your price and don’t go over it. Do your research. Hopefully you have a real estate agent who’s helping you with comps in the neighbourhood and understanding what this house should actually sell for.
Having your best price in mind, you can submit and offer and walk away. If you get it, great, and if not, you know you did your best.
The Second Easiest Way To Avoid a Bidding War
The first way was easy, but leading with your best offer doesn’t leave a lot of room for bargaining. A better plan is to have a couple prices in mind. First would be a reasonable offer, either asking price or wherever you think everyone would be getting a good deal. You’d then have a second, higher price that you would use if the first didn’t work.
Spot a Bidding War and Stay Away
In a real estate market where bidding wars are common, it’s easy to see when they’re being encouraged by the agent or seller.
• If your agent tells you that similar properties in the area sell for around $320,000 and this one is listed at $280,000, it’s likely the price has been lowered to get people excited about it.
• If the selling agent tells your agent that they will not be accepting multiple bids, it’s because they are expecting multiple offers and want everyone to put in their best one first.
• If the selling agent hosts an open house for brokers then they’re working especially hard to attract interest. Nothing wrong with that of course, but it’s unlikely yours will be the only bid.
Don’t Play Games
Negotiating is of course one of the foundations of buying and selling real estate. Nothing is set in stone, and so there’s a lot of leeway between buyers and sellers.
If you submit an offer and the seller comes back asking for more, you have a simple choice to make: accept, refuse, or counter-offer. Hopefully you can all work together to find a price everyone is comfortable with.
If you start getting phone calls from your agent saying the seller’s agent told them something in confidence, suggested you raise your bid to X, or anything else that’s secretive, your alarm bells should be going off. Often agents will use this kind of strategy to artificially increase everyone’s bid, benefitting only the seller (and their agent).
This is why it’s so important to have a reasonable best price and stick with it.
Go in Prepared
Simply be prepared and stick to your guns. The easiest way to do this is:
• Know the market – understand the fair market value for your home
• Set your price – take emotions out of it. You’ve done your homework and have your price – don’t go over it.
• Don’t be talked into anything – overbidding, re-thinking your bid, or taking out conditions, etc. These are all attempts to get you to change your mind when you’re vulnerable.
That’s it, you’re ready to go – now go find that perfect home!