Winning Bidding Wars
Winning bidding wars in Toronto is urban warfare. If your clients can live with no-conditions offers and have mortgage pre-approval or cash on hand, they (and you) could lead the pack.
Are Bid Wars Worthwhile?
Aggressive sellers with an eye on the bottom line like bid wars for their over- market-value offers and firm bids from committed buyers. The email list is helpful if the winning bid collapses on conditions like mortgage financing. Or buyer's remorse sets in and the bidder can afford to lose their deposit.
Is the stress and effort worth it? It depends. Buyers relying on third party financing are 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.
No question bid wars inflate prices. That could short buyers if they try to resell in the short term. Holding long helps, since buyers can build equity over time.
Final analysis: wade gently into bidding war territory. For your clients' sake and your own business reputation.
Six Steps for Registering Competing Offers
- Set an offer closing time and date convenient for your buyer. Avoid weekends when mortgage lenders, mortgage brokers or home inspection agencies are closed.
- Email brokers who showed the property when the first offer is registered.
- Advise the first offerer if subsequent offers are received.
- Time and date stamp registered offers or form 801s.
- Automate emails to generate responses each time an offer is registered.
- Inform all registered and prospective bidders of bully offers.
What to Tell Buyers About Bidding Wars
Remind buyers' agents bidding wars move at lightning speed, are unpredictable and bring no guarantees offers will be considered or accepted.
Your commitment to potential buyers extends to advising them on:
- how many offers are in play, based on registered offers or form 801s
- dual agency relationships between realtors or brokerages and buyers and sellers
- reduced commissions buyers' agents have agreed to
- and when sellers change sale or offer conditions, such as reviewing a bully offer.
Update all bidders if the closing date changes, without disclosing the value of competing offers. Your obligations go beyond registered bidders. Keep accurate records of anyone who expressed interest, viewed properties for sale, made viewing appointments, submitted an offer or planned to make a competing offer.
Bully Offers and Realtors' Responsibilities
Pre-emptive offers are not your responsibility to monitor. It's up to the seller to signal if they're interested. Bid offer deadlines are arbitrary, not legally binding, and prospective buyers have no legal recourse if your seller accepts a bully offer. Likewise, unless you fraudulently misrepresented terms or conditions of offer, bidders typically can't sue you if they lose.
A bidding war that seriously exceeds local property values has its own hazards for buyers. More particularly, what the property is worth on a deflated resale market.
All-cash Offers and Escalation Clauses
Cash is king if real estate investors choose to forego contingencies. No appraisal or mortgage loan approvals are required. Serious investors aren't phased by higher mortgage payments if counteroffers are solicited.
Escalation clauses help sellers but may bind buyers. Encourage them in highly competitive markets. Otherwise, buyers are better off not giving away their bottom line.
Waiving Conditions -- Risky Business?
Buyers may feel pressured to remove conditions to seal bidding war deals. Is it ever appropriate or simply risky business? Mortgage financing, no -- even with preapprovals. Property inspections, a tentative maybe.
Waiving conditions on land-only sales runs the risk easements, flood plains or improper property lines will create financial headaches. Ask if the property value is in the land only and consistent with the latest appraisal -- and if the buyer is familiar with the geography and geology of their location.
Market property in "as-is condition". Always advise buyers against waiving home inspections unless the seller provides a recent, certified inspection report from a reputable inspector.
Writing Winning Letters to Sellers
Buyer "love letters" to sellers can be heartfelt, if sincere. Are they a winning strategy? Only the seller can decide. Tips for advising buyers on writing effective homebuyer letters:
- Pitch to homeowners, not home builders or developers.
- Target what buyers have in common -- pets, woodworking, a love of heritage houses.
- Put the buyer in the home. For example, the buyer's family enjoys movie nights at home together. They appreciate the care the homeowner took to design a comfortable home theatre that is the perfect place to relax after a long work week
- Remote viewings and offers can be appealing. Be the buyer who can helicopter in by videoconference instead of invading the seller's COVID-safe space.
- Look professional. Check for typos, spelling errors and poor construction that turn off sellers.
- Keep it short and summarize key points at the end.
Is Dual Agency Wise?
Informed consent is the watchword for double ending. Make sure buyers and sellers agree to multiple representation and get it in writing. You can always offer customer, not client representation if buyers or sellers are tentative. Axess Law advises real estate buyers to get independent legal advice before signing any agreement to purchase, especially dual agency arrangements.
Professional Ontario Real Estate Lawyers
Axess Law's licensed real estate lawyers charge flat fees for legal services. Buyers or sellers can book appointments online in minutes.
We have law offices in Greater Toronto Area 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.
Making Remote or In Person Legal Appointments
Have clients call 1-877-402-4277 or our 1-647-479-0118 lawyer line in Greater Toronto Area to arrange closing transactions. We charge $999.99 and up to represent buyers and $799.99 and up for sellers.