A Greater Toronto Real Estate Buyers’ Guide
One of the predicaments that many Toronto area buyers find themselves in while attempting to purchase a home or condo is the multiple offer – bidding war. Multiple offers are one of the symptoms of the robust real estate market that we have enjoyed over the past few years. Reports of bidding wars where homes sell for $100,000 and more over the asking price are common enough throughout Greater Toronto – and not just in the prime downtown areas. Today you can find bidding wars occurring even in suburban areas such as Mississauga and Oakville. If you are a purchaser, how can you increase your chances of winning when you are out house hunting, and you find yourself in a situation where you are obliged to bid against others? This article is based on real-life experience in buying and selling hundreds of homes in the Greater Toronto Area, and if you find yourself in a bidding war – multiple offer situation, they may help you to increase your odds of winning.
Most people focus on price when in a bidding war, and that is absolutely the single most important consideration, but there are actually many other factors which can affect the chances of you winning or not. In this article, I will go over a few proven strategies that will increase your odds for success when in a multiple offer – bidding war situation.
How to Win a Bidding War
We will discuss:
- How to improve your chances of winning in a multiple offer situation
- What to avoid when in a competing bid situation
- What sellers want, and how to give it to them, so they will accept your offer over others
- The 5 key offer components you need to be aware of…
- How multiple offers work
- How to deal with “Bully Offers”
- And more!
Multiple Offers – Strategies
First off, there are different strategies to consider when you are up against a single competing offer, or when you are up against several competing offers. Let’s look at the different parts of the Agreement of Purchase and Sale.
1.) Closing Date: it seems so simple, but always try and give the Seller the closing date that they want . Usually this can be accomodated without undue difficulty. Such a simple thing can mean the difference when there are two identical offers, but only one matches the desired closing date – the Seller will naturally accept the offer with the preferred closing date. Real estate agents who are experienced in multiple offers will always call the listing agent to verify the preferred closing date, prior to preparing an offer.
2.) Deposit: obviously, the bigger the deposit, the better. The ‘good faith’ deposit is required once the offer is accepted; it forms part of your downpayment, and is held in trust, usually at the listing brokerage. When there are two identical offers, the one with the bigger deposit will always win, as it conveys to the Seller that the Buyer is serious. It also creates a feeling of security for the Seller that the deal will actually close on closing day. Good faith deposits generally increase as the price point of the home increases, but nowadays, $20,000 is a bare minimum when competing in multiple offers in the GTA. Make sure you have access to these funds, as they need to be delivered the next business day. Most real estate companies require a certified cheque or bank draft for the good faith deposit.
3.) Conditional Clauses: when competing against other Buyers, the usual precautions taken with conditional clauses will almost always kill your chances of winning. Most home sellers are looking for certainty when they accept one offer over all others, and the last thing they want is to accept an offer which fails to firm up when a condition is not met. Although the strongest offers are always unconditional (firm), usually a clause for Home Inspection will be o.k., with a short timeframe for completion – i.e. only 1 or 2 days. From the Seller’s point of view, they believe their house will meet home inspection standards, so they usually will accept this condition. In addition, in the city of Toronto, many Sellers will actually pay for a pre-offer home inspection, which is made available to the Buyers, avoiding the need for any home inspection clause. This also can apply for condominium Status Certificates, which are a financial statement for the Condo Corporation, if you are bidding on a condo.
What must be avoided in almost any bidding situation is a clause for Financing. This creates a dilemma, for even if you the Buyer are pre-approved at your lending institution, that lending institution must also approve the transaction. The bank also requires an appraisal of the property, and if the appraisal comes in lower than the end purchase price, the loan may not be approved. In the event of a low appraisal, what usually happens is the bank will approve the loan, but will require the Buyer to provide a larger downpayment. All this is a way of saying, be careful when bidding in a multiple offer situation, because if your offer is accepted, the Agreement of Purchase and Sale becomes a legal binding contract, and you need to be sure that your financing is rock solid. If you have a large downpayment, there should be no problem, but first time buyers with only 5 or 10% downpayment need to be careful.
Any clauses such as conditional on a lawyer’s approval, or conditional on the sale of the Buyer’s property will almost always be rejected in a bidding situation, so you need to avoid these.
4.) Chattels: these are the ‘extras’ included in the property listing – the appliances, any light fixtures or window coverings, plus additional items such as garage door openers, hot tubs, barbeques, air conditioning units, and so on. The best rule of thumb, ask only for what is offered in the listing, and no more. Once again, with 2 identical offers, if one is asking for something extra, it will probably lose to the other offer which has no extra requests.
5.) Offer price: here is the most important aspect of any offer, and here is where experience counts. You have to look at your multiple offer situation in context – the Listing Agent is obliged to advise the Buyer’s Agent how many other offers are registered, but is not allowed to divulge any of the competing offer details. So you will not know what the offer prices of the other offers are. This creates a ‘blind bid’ situation where you are offering an amount without any knowledge of what your competition is. This is where experience counts, and a good agent will know what your offer needs to be. If you are competing against only one other offer, then you can judge approximately what to offer, but if you are competing against 6, or 8, or 10 other offers, then it is harder to know. In a multiple offer situation, you are usually only given one chance for success, so you have to make your best offer, the very first time. Make sure you are comfortable with the amount you are offering, as the Agreement of Purchase and Sale is a legal, binding contract, once it is accepted.
Multiple Offers – Process and Rules
The Seller and their agent can choose to manage multiple offers in several different ways. They will review the offers one at a time, usually in the order which they were registered. None of the Buyer’s agents will know what the competing offers are. Then, the Seller can simply choose to accept the highest or best offer, or often, if several of the offers are nearly identical, they can send some or all of the offers back for ‘improvement’. In this case, you the Buyer have a second chance to improve your offer, although once again you will be bidding blind against the ‘improvements’ of your competition. Once the improved bids are submitted, then the Seller will choose which offer to accept. The request for improvements can happen more than once, if 2 or more of the offers are nearly identical, The process can be nervewracking for the Buyer, but eventually, one Buyer will come out victorious! Unfortunately, the other buyers will go home empty handed.
What is a ‘Bully Offer’? Many times a Seller will request that offers only be reviewed after a certain date. The Seller may be out of town for a time, or they may simply be seeking to increase the odds of a bidding war by delaying the presentation of offers for a few days. Most often, the MLS listing will have comments on it such as ‘offers welcome on Sept. 28’, when Sept. 28 is several days away. Sometimes another Buyer and their Agent will insist on registering and presenting an offer prior to the date mentioned – this is what is known as a ‘bully offer’. These bully offers, are usually very strong, and very difficult to compete against. The listing agent is obliged to advise all the buyer’s agents who have shown the property, and who are waiting patiently for the offer date, that there is a ‘bully’ offer that the Seller will be reviewing. This way, any other agents and their buyers will have a chance to make an offer at once. All this is perfectly legal, as the Seller is not bound to wait till the offer date; they are allowed to change their mind, and look at any offer early. I usually advise buyers to avoid competing with bully offers, as they are usually so outrageously high that it is not worth it.
Real Estate Bidding War – Strategy to Stay grounded
Finally, try to remain cool-headed when in a multiple offer situation. Remember, it’s only a house, set yourself a budget limit, and stick to it. Try not to get caught up in reckless bidding, as there are some bidders who are not worth competing against – there are some people out there who will bid sky-high, insane amounts to get what they want. Unless the house or condo is one-in-a-million, remember that there are always other homes. All part of the wonderful world of real estate in the Greater Toronto Area.
One other very important thing to remember when participating in a biddng war – if you need financing to complete your purchase, the bank will review your purchase agreement, and will send out an appraiser to view the property, as part of their approval process. If the appraiser feels you have overpaid, they may decline your loan request, or may require a larger down payment from you.
Hopefully, if you are a buyer of real estate, this checklist and overview of the Multiple Offer process has helped answer one of the key questions of how to purchase property. Working with an experienced Realtor who is knowledgeable and comfortable with the multiple offer process is essential if you want to come out on top.
Get expert help today! It can make the difference between winning and not winning a bidding war.
author: Randy Selzer