Bidding war seems to be the norm these days when looking to buy a home in Ontario. It can be extremely frustrating as a buyer looking to purchase a property in the current real estate market as you are essentially submitting an offer along with multiple other interested buyers and crossing your fingers and hoping for the best. The best being, that the Sellers choose to work and accept your offer.
In this blog post I am going to give you the following information and tips to assist you in the bidding war process:
How to make your offer so you have the best chance of getting it accepted in bidding war
How to ensure you do not overpay and pay more then what the property is worth
Let’s start with how to give yourself the best chance of getting your offer accepted.
First off, I would like you to understand the real estate market fundamentals and why we are seeing bidding wars on nearly every real estate listing.
In a normal balanced real estate market, where there are an equal number of sellers as there are buyers, you can submit offers on properties and negotiate with the sellers. In this kind of market, sellers are happy and excited to review your offer and Buyers are excited to submit an offer on a home they love. In this situation both sides carry nearly the same amount of leverage into the negotiation.
In the current real estate market, there are far more buyers than sellers which gives the Sellers all the leverage in the negotiation. In other words, if the Sellers say jump, as a buyer, you need to jump. The Sellers hold all the cards.
Let me quickly show you what I mean with an example from the Barrie, Ontario real estate market where I live and practice real estate.
As you can see, right now (January 2022) currently, the city of Barrie is sitting at 0.1 months worth of inventory or perhaps better understood as 3 days. This is insanely low! A balanced real estate market is more like 4 to 6 months and we have 3 days! There is not enough listing inventory to keep up with the exceptional demand. It is this real estate dynamic that is causing prices to continue to rise and for nearly every real estate listing to schedule a date in which to review offers.
You rarely see a property get listed without posting an offer date, example of what I mean:
“Offers are being presented on Friday, January 28th at 5:00pm. No-pre emptive offers are being accepted”
This is the direction that gets posted on every listing so agents and buyers know when they can submit an offer on a house. Why are they doing this?
If there were not offer dates, it would not be unreasonable for a property to get listed on the MLS in the morning and have an offer by lunchtime. As a selling agent, you want to do what is best for your client, that being the seller and in saying that you want to try and expose the property to as many buyers as you can. The way to do that, not review any offers for at least 5 days to give more people an opportunity to see the home and at the same time, ideally get more people to your auction which would result in a higher selling price.
Before moving on, let’s clarify what a pre-emptive offer is. A pre-emptive offer, also known as a “bully offer” is an offer that is submitted in advance of the offer date. Even though the listing states offers are being accepted on January 28th, the buyer wants the property so bad they are going to make and offer the first day it’s listed anyways. Some sellers will consider a pre-emptive offer and some will not and there is actually a written document that sellers can sign now to state one way or the other.
So, what can you do to have the best chance of getting your offer accepted? A few things actually and it’s not simply offering the most amount of money as most would assume.
First off, yes, money does talk and, in most cases, if you have the highest offer, you will win, but not always and there are other factors.
Conditions –
In a normal balanced real estate market, or better said, a real estate market with more then 2 months worth of inventory, it is common practice to submit an offer conditional on a few conditions, the most common being financing and a home inspection.
These conditions give the buyers the opportunity to ensure they can qualify and get financing to pay for the property and in the case of a home inspection, hire a knowledgeable professional inspector to walk through the house with you, testing appliances and levels of moisture amongst other things, usually this takes upwards of 2-3 hours so that you as the buyer have a good understanding of what you are buying, what needs to be addressed etc.
In a bidding war, these conditions simply do not stand a chance. If you are a seller and you have 5 offers on the table. Two of the offers have no conditions, sign the agreement and they are firm and binding, whereas the three other offers all have conditions (5 days for financing and 5 days for home inspection) which would you choose? The sure thing, or the offer from the buyer who after an inspection might get spooked by something and walk away. Yep, all day long you are accepting the sure thing. Unless the conditional offer is thousands and thousands more money than the sure thing and at that point it’s a gamble.
So, the first thing you can do to give yourself the best chance is make unconditional offers. Make sure you have clear communication from your lender, know exactly how much you can qualify for so you do not make an offer that you will not be approved for. Spend as much time as you can checking out the house (which can be hard these days as most showing times are limited to 15 or 30 minutes) but look at mechanical systems, windows, shingles the larger capital items that will carry the largest replacement value, it helps working with someone who is experienced and knows what to look for and can help you with this.
Deposit –
In these unpredictable markets, deposits are more important then in a more normal balanced market. What exactly is the purpose of the deposit? The deposit is basically, “skin in the game”, it’s an amount of money that holds you to the contract and gives the seller confidence that you are going to fulfill your obligation and close the agreement. If the market turns, a seller wants to feel confident that you will not walk away from the deal. Let me give you an example. Let’s say you put down $5,000 as a deposit. The market changes and now the property is worth $25,000 less then what you agreed to pay on the sales contract. It would then be a possibility that you would choose not to close the deal and forfeit the $5,000. This is why the deposit is so important in the current real estate market. A healthy deposit, an amount that the Seller feels confident that you would not choose to forfeit and walk away from for any reason can be the difference in getting your offer accepted or rejected.
Closing Date –
An under used tip is asking the Sellers what their preference for closing is. Many buyers will just submit offers with the closing date that they want but what you should be doing is inquiring with the selling agent to find out the preference of the sellers. In many cases the sellers are trying to align the closing date with a purchase of their own and if you can give them the closing date they need, huge bonus on getting your offer accepted.
Those three strategies can often be the difference of winning and losing in a bidding war. There are of course many other strategies that can be used depending on the unique situation every property presents. Working with an experienced professional who can spot these other situational factors can also help. You are probably saying to yourself, “yea, yea, just a sales pitch” but in all honesty there are things like, rental contracts, chattels and fixtures, vendor take back mortgages, lease backs, and many, many different scenarios that can come up that by working with someone experienced and who can spot these scenarios can help come up with other ways to make your offer more appealing to the seller with the hopes of getting your offer accepted.
Now that we have identified a few ways in which you can give yourself the best chance of getting your offer accepted, let’s look at how you can ensure you do not overpay for the property, which is easy to do when nearly every property is under valued on purpose.
Yes, I am saying the property listed for $599,900 is worth a lot more then $600,000 and has been listed strategically for far less then market value. This strategy is used all too often these days which I can understand and appreciate as it gives the Seller in most cases, the best opportunity to sell for the most amount of money. You simply do not know what someone will value the property at, so why price it where you think it’s worth when someone else might think it’s worth more, a lot more.
I am going to detail the way in which I use to value properties in this quickly moving real estate market as it can be tough to use the traditional way, looking for similar style and location properties and comparing them to the subject property. Why is this difficult? Because the real estate market changes so quickly. A similar property that sold around the corner 3 months ago is in a sense irrelevant as the market has appreciated considerably during that 3-month period and on top of that, there is not as many properties that are selling these days with such low inventory.
My method for valuations uses formulas and math to calculate a percentage that is based on the current market median sales price. This percentage for the most part will remain constant no matter when the sale date occurred. By using this method, I can take the subject property, look back at historical sales to see what percentage the property sold for. By doing it this way, I can come up with an estimated current value based on the current real estate median sales price. I will give you an example. I will use a recent property in Barrie that has just sold.
*I have no affiliation with this sale, using the details for demonstration purposes only.
Property is located on Rundle Crescent.
There were not many recent sales to give a good idea of value, but I was able to find 6 sales on the same street, same house, same layout, same sqft, everything which is a decent sample size to best determine current value in terms of what this type of property has sold for in the past.
| Address | Sale Price | Sale Date | Med $ @ Sale | Percentage | Current Median | Estimated Current Price |
| Rundle | $756,000 | Nov 2021 | $833,722 | -9.32% | $904,000 | $819,726 |
| Rundle | $295,000 | Sept 2015 | $347,580 | -15.13% | $904,000 | $767,247 |
| Rundle | $420,000 | Nov 2017 | $468,839 | -10.41% | $904,000 | $809,830 |
| Rundle | $435,000 | Aug 2018 | $471,700 | -7.78% | $904,000 | $833,665 |
| Rundle | $436,500 | Jan 2017 | $460,224 | -5.15% | $904,000 | $857,399 |
| Rundle | $479,000 | April 2020 | $529,577 | -9.55 | $904,000 | $817,663 |
Note – Addresses have been hidden for privacy reasons.
As you can see, out of the 6 different sales, they are all pretty consistent in terms of the percentage, that being from -5% to -10% of the current median sales price. The difference in the percentages is largely based on property condition. The subject property was in pretty good condition, relative to the others which in my opinion I would have put a value around the -3% to -5% range, which would put it at the top of the valuation in terms of these subject properties. At the end of the day, the finishes of this property were really nicely done, and I could justify an increased valuation.
Based on this I estimated the sale price to be $860,000 to $875,000.
So, what did it end up selling for? I am sure you want to know.
Listed for $699,900 and sold for $890,000 or about -1% which really puts the valuation on that sale well above the others and in my professional opinion, a situation where the buyers may have overpaid some.
The last thing I will say is, this market can make you overpay, which is why sellers will continue to under price their listings, because the buyer who has lost out on 15 previous offers might just offer way more then you could ever even imagine.
What a market eh…
If you would like more information on how I value properties and how I might be able to assist you with the purchase of a property, you can reach me at jeff@jeffgilbert.ca or send me a message on one of my website forms. Thank you for visiting and reading my real estate content.
