Winning real estate bidding wars in Toronto is urban warfare.
If you can live with the downsides of making a firm offer real estate bid, or have mortgage pre-approval or cash on hand, you could be way ahead of the pack. Here are Axess Law’s tips on winning real estate bidding wars for Ontario property buyers.
Who Wins and Loses in Bidding Wars
Let’s start with the basics, like how do bidding wars work, and how do I win a bidding war on a house? More to the point, are bidding wars worthwhile?
They can be. Aggressive sellers with an eye on the bottom line like bidding wars for their over-market-value offers and firm bids from committed buyers. Having an automatic email list of hopeful buyers is helpful if the winning bid collapses on conditions like mortgage financing, or buyer’s remorse sets in. Buyers who back out, by the way, lose their good faith deposit. Who gets the deposit when a deal collapses?
Are the stress and effort worth it for buyers? It depends. Relying on third-party financing could leave you out of luck if the price is too far over appraised value.
Chipping in extra cash can mitigate, but what mortgage lenders want is assurance they can recover the mortgage amount plus expenses in a forced sale. What’s a forced sale?
No question bidding wars inflate prices. That could short you if you have to resell your property while housing prices are flat. Holding longer may get you out of the bind over the gap between what you paid and your home’s current market value. Most homes build equity over time.
Final analysis for buyers: wade gently into real estate bidding wars, before you lose your shirt on the home of your dreams.
How Bidding Wars Work
Bidding wars start when a realtor and home seller invite multiple offers, usually by a specific date and time called the offer presentation day. Bidding war realities.
- Your realtor receives your signed offer, and time and date stamps it. That’s called registering your offer.
- The listing realtor typically emails or contacts real estate brokerages or agents who showed the property when the first offer (not necessarily yours), or subsequent ones, are received.
- You have a right to know:
- how many bids are submitted
- with the seller’s consent, details of other offers
- if your realtor or brokerage is representing both you and the seller, called a dual agency relationship – get legal advice on dual agency
- if realtors reduce their commissions to make their offers more competitive
- if a seller changes their sale or offer conditions.
- You can improve or leave your offer as is. But you can’t withdraw before the irrevocable period in your contract without potential financial penalties. Buyer’s right to cancel.
- You may or may not be advised if the seller receives bully offers — no condition, aggressive offers with short expiry dates that pre-empt other bidders. Sellers can ignore bully offers, open them before offer presentation day and negotiate directly with the bidder, or invite other bidders to compete.
- Your realtor advises you when a bid is accepted.
How to Win Bidding Wars on a House
Bidding wars move at lightning speed, are unpredictable, and bring no guarantees your offer will be considered or accepted. Bid offer deadlines are not legally binding, and you have no legal recourse if a seller accepts a bully offer. Unless your realtor fraudulently misrepresented the bidding process, you typically can’t sue if you lose.
Six Ways to Win Bidding Wars
Six ways to stand out in bidding wars, and increase your chances of winning a bid on a house:
- Having Axess Law review the agreement of purchase and sale. Understand what you are committing to before you submit your offer. It reduces time-consuming amendments that turn off sellers. What’s in your agreement of purchase and sale.
- Putting your offer in early. Offer presentation days are a line in the sand. Sellers can review and accept offers at any time.
- Using “comps”, what comparable properties are selling for. Ask your realtor for advice on what to offer. Offering over asking price.
- Getting mortgage preapproval. Your offer may fall apart if you bid more than your lender will approve, or a home is worth. How to get your mortgage preapproved.
- Submitting an all-cash offer. It’s convenient for sellers (no waiting for pesky mortgage approvals), and you may be able to bid lower.
- Making a firm price real estate offer. While we don’t recommend waiving conditions like home inspections or mortgage financing, you may feel pressured to. Be aware firm offers can backfire if a home needs repairs, is hazardous to your health, sits on a flood plain, or has easements or rights of way that restrict your use. Pros and cons of firm price offers.
Writing Winning Letters to Sellers
Writing a buyer “love letter” for your realtor to give a seller’s agent can be a winning strategy. Be observant when you tour homes you like. Comment on what you and the seller share in common, like pets or a love of heritage properties. Tell the seller the many ways you or your family will enjoy their treasured home. It could just help them envision you living there. Write a real estate “love letter”.
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Axess Law Ontario real estate lawyers advise you on the agreement of purchase and sale. We have law offices near your clients with long hours and convenient day or evening appointments to fit your clients’ schedules. Our Ontario realty attorneys use secure remote video conference technologies to close real estate deals anywhere in Ontario. Make a virtual appointment by dialing toll-free to 1-877-552-9377 or 647-479-0118 in Toronto, or use our online booking form.
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