How Do You Win a Bidding War When Buying a Home in Toronto?
2020 will go down as one of the most difficult and unexpected years in history, of course, because of the global pandemic. Even so, the real estate market favoured sellers due to lower interest rates and high household savings. Compared to the previous year, home resales increased by 13%, reaching 552,300 – the most ever (Zochodne). This trend also appears to increase in 2021 and, perhaps, beyond. As a buyer, you expect to encounter a “multiple offer” situation. Thus, you would want to know how you can increase the odds of winning a bidding war to own your dream house.
Real Estate Bidding War in Toronto Winning Strategies
As much as you want to avoid multiple offers and bidding wars, the prevailing market conditions are on the side of sellers. Take the first month of 2021 as an example. Sales increased by 35.2% compared to 2020 (Canadian Home Sales, Prices Hit New Highs for January Compared to Last Year).
Ordinarily, an increase in home resales is not concern if there is more than enough inventory. Unfortunately, that is not the case, which is why you may find yourself competing as many as 30 to 40 other buyers. That’s also why the average resale price of a house in Ontario is higher than in previous years. In Toronto, for example, the housing market averaged more than $918,883 compared to $819,832 the year before.
This happens when there is high demand for any object. For example, sometimes, an object doesn’t sell and there are plenty of them sitting on store shelves, maybe even discounted in the hopes that the store can get rid of them. But, if the object is selling SO WELL that it keeps selling out and dozens of people are still fighting for each one, the store will be able to raise the price and that item will still sell!
The same is true in the housing market. If you’re actively shopping for a real estate property and sales are down, this will work out in your favour, because sellers are trying to offload their houses. You can get houses for much cheaper – almost as if they are on sale!
But, if houses are selling fast and there are plenty of buyers, there’s a lot of competition for each home, so the seller can raise their price. If there’s enough competition, people will begin to offer the seller even MORE than they are asking for the house… even hundreds of thousands more!
If you’re entering the market today, it seems there are bidding wars on almost every home on the market. Here’s how you can increase your odds of winning.
1. Avoid Multiple Offers and Bidding Wars
The Multiple Listing Services (MLS) is a tool used by realtors to cooperate and share compensation. It is a system where they can share information on listed properties. Sellers benefit from the additional sales channels (other brokers). Naturally, any broker who sells a property receives a commission.
For buyers, even if they work with only one broker, they can see the listings of other brokers. Having plenty of choices sounds good. On the flip side, that also means more buyers are looking at a property you like. Hence, if you find a property that has not yet entered the MLS system, make an offer and close the transaction.
Unless you have no choice, avoid spring and fall, for that is when there are more buyers than available properties. During winters, the inventory drops but so is demand. Buying during the “off” season is when there is less competition.
2. Understand the Market Value
Multiple offers and bidding wars benefit sellers because they can get a lot more money than they thought – maybe even more than their house is worth! One strategy they use is to underprice a property. The low asking price, of course, attracts many potential buyers. Naturally, many of them would be submitting “attractive” offers. Another tactic used to bump up the price is setting a date for buyers to tender their bids.
Sellers will sometimes list their house on say, June 1, and announce they will be accepting bids only until June 14. This gives buyers just 2 weeks to look at the house and make an offer. At that time, the sellers will look at all offers and decide who they’ll sell to. The time crunch creates buyer chaos, and there’s nothing better than chaos to make prices soar. Want some proof? Look what what buyer chaos did back in 1983 when little girls were begging for a certain doll.
How do you know if a seller intends to start a bidding war?
Your broker can help you determine that by checking comparable homes, see if they are selling (or sold) for much higher prices. If so, then you are probably going to have stiff competition.
Understanding the market value can also save you time. If comparable properties nearby were sold at prices beyond your budget, then move on and find another property. That property with an enticing listing price is most likely going to reach those price ranges.
3. Get Pre-approved for Mortgage
Even if you have no intention of getting involved in a bidding war, it may be unavoidable. It is, therefore, better to come in prepared. One of the best ways to do that is getting pre-approved for a mortgage.
A pre-approved mortgage benefits you in three ways:
- It is an excellent way of determining how much you can afford. Knowing your ceiling allows you to strategize with your broker if it comes down to a bidding war situation.
- Sellers want an assurance that they are dealing with people who have the means to buy their property. A pre-approved mortgage is a demonstration of your seriousness and capacity to buy. As a result, you can cut through the competition who did not get pre-approved.
- If you end up as the winning bidder, a pre-approval speeds up the final mortgage approval process.
4. Submit Your Best Offer, Or Not
Most brokers recommend putting your best foot forward. It does make sense, as many home sellers end up choosing the highest bidder. If you win, then congratulations. On the other hand, if you lose, you can focus on finding another property. You can save time and energy by making only one offer. There is no need to guess what other buyers are offering.
Buyers do not get a second chance in most bidding wars. However, some situations a seller may make a call for second bids. For example, you might end up among the top bidders. Or, the seller may lean towards choosing you but want to negotiate further based on your original offer. In both cases, having a buffer could prove helpful in closing the sale.
Should you submit your highest bid or leave a little room for the just in case?
It’s usually our recommendation that in this type of chaotic market, you make your absolute best offer on a house. If you really want it, it’s likely other people do as well. So make your first offer count. Whatever your highest offer would be, present it the first time to give yourself the best shot.
The most important thing you need to remember is to know the current market value of the property. Secondly, you should also understand that banks do not approve a mortgage based on the market value but the appraised value. In other words, you should make sure that the highest offer you submit should be under or nearly the same as the appraisal value.
5. Waive Conditions But Be Mindful
The demand for Toronto real estate (and in other parts of the GTA) continues to be high. What else can you do in a seller’s market? You can try going hardcore by waiving conditions.
**We’d like to make it clear we never recommend this option. However, it is a tactic used by some to give themselves an edge.
A typical offer usually comes with stipulations or conditions. These are contingencies that need to be met or waived for the transaction to go firm. The two most common conditions involve home inspection and financing.
The fewer conditions, the better it is for sellers. A conditional offer, you see, contains potential deal-breakers. For example, if you could not secure a mortgage, having a finance condition can let you go off the hook freely and get you your deposit back. Should there be serious issues found during the home inspection, you could walk away from the deal without any legal ramifications.
On the part of sellers, the conditions that protect you as a buyer are the ones that keep them in uncertainty. They may have picked the winning bidder, but the transaction is not over until it is indeed closed.
Taking an aggressive stance and submitting a clean offer is one step towards winning the bidding war. Not all buyers are willing to do that – and for a good reason. If you need to renege on your deal, you can, but that leaves you exposed to possible legal liabilities.
You can win a bidding war by taking this approach if you come in prepared with a pre-approved mortgage. Before considering to bid on a property, review the pre-listing home inspection report. Suppose you feel comfortable that the information provided is detailed enough. There are no structural flaws or damages that require extensive and expensive repairs. In that case, a clean offer is certainly worth trying.
If the report provided by the seller lacks details that you deem necessary, what can you do?
As long as there is enough time, you can try arranging for a home inspection. Sure, you would have to pay a few hundred dollars out of your pocket. But that is the price you have to pay for peace of mind if you were to make a clean offer.
6. Prepare a Sizable Deposit Fund
It is a common practice in Toronto to have buyers submit deposit checks to the listing agent’s brokerage 24 hours after the acceptance of their bids. Keep in mind that even without a deposit – an offer is binding once accepted (Bhasin v. Hrynew, 2014 SCC 71 (CanLII),  3 SCR 494).
Instead of dilly-dallying, though, you can show a seller how serious you are by having a certified cheque or money order ready, along with your offer.
How much should you prepare to win a bidding war?
At the very least, you should prepare 5%, as that seems to be the going trend. Considering that competition is stiff in the Toronto real estate market, you may want to bump that up – the higher it is, the more impressive it looks to a seller.
7. Get Personal
It is not uncommon for sellers to feel emotionally attached to their houses. Even though they are selling their properties, most of them would want to know that the people moving in would take good care of their old homes. If you and the seller could somehow connect and relate to each other, you might end up as the last bidder standing.
You and your realtor could try to find common grounds with the seller. For example, let the seller know who you are, why you are buying the house, and so on.
8. Make a Preemptive Offer
If the money is good enough, would sellers forego multiple offers and bidding wars to simplify things?
Some sellers do.
A bully bid is the most aggressive strategy you can use to win a bidding war. Quite simply, you make an attractive offer before a seller officially starts accepting submissions.
Depending on perspective, this tactic is either advantageous or dirty. If you choose to go this route, that dream house could very well be yours. On the other hand, every other potential buyer would scream foul for not even getting a chance to submit an offer.
Bidding War Winning Strategies
If you are shopping for a home in a hot market such as Toronto, be prepared to compete with tens of other buyers. Your real estate agent should try to steer you clear of multiple offers and bidding war scenarios. That, of course, is far easier said than done. The best thing you can do is try staying ahead of the pack by employing some or all of the strategies presented here.
Can you win a bidding war?
There is no guarantee that you would, but you can raise the chances. As a general rule, think like a seller. Your realtor can help you with that. Think about what they want, need, and expect. Armed with that knowledge, you can plan on the best approach to take in submitting an offer.
Zochodne, Geoff. “Pandemic Housing Market to Stay Hot in 2021, but Economists Expect a Hangover Later in the Year.” Financial Post, 14 Jan. 2021, financialpost.com/news/economy/pandemic-housing-market-to-stay-hot-in-2021-but-economists-expect-a-hangover-later-in-the-year.
“Canadian Home Sales, Prices Hit New Highs for January Compared to Last Year.” CBC News, CBC/Radio Canada, 16 Feb. 2021, www.cbc.ca/news/business/crea-january-home-sales-1.5915326.
Supreme Court of Canada. Bhasin v. Hrynew, 2014 SCC 71 (CanLII),  3 SCR 494. 13 Nov. 2014, www.canlii.org/en/ca/scc/doc/2014/2014scc71/2014scc71.html.