Canadian real estate was on track for a typically busy spring market. Then the pandemic hit, and social distancing measures, business closures and greater economic uncertainty ensued, leading to a dramatic (albeit temporary) downturn for home sales across the country. Interestingly, the decline in transactions was proportional to the decline in new listings coming on stream, which meant market balance didn’t change a whole lot in many regions. Seller’s markets were still seller’s markets, inventory was still low, and the competition remained fierce. Even during the pandemic, RE/MAX brokers reported multiple-offer scenarios in key Canadian housing markets such as Toronto, Ottawa and Vancouver, among others. This leads many to question what prompts multiple offers, and how do you win a bidding war?

What is a seller’s market, anyway?

In a seller’s market, there are more buyers than there are homes available for sale. The combination of limited inventory and high demand often puts upward pressure on prices. Homes typically sell quickly in a seller’s market, and multiple offers on a listing are more likely, giving the seller the upper hand.

Aside from the simple economics of supply and demand, what causes a bidding war on your house? There are a few factors that can prompt these circumstances.

When market conditions favour home sellers, it means demand is usually up and inventory is down. With few listings on the market, the seller and listing agent may choose to set an offer deadline by which interested buyers must submit their offers. The seller then reviews the offers and either accepts one, or can return to the buyers with the option to resubmit a better offer, if they so choose. However, buyers may not get a second chance to make an offer.

How do you win a bidding war?

Sellers can only hope to receive multiple offers on their listing. However from the buyer’s perspective, it can be a frustrating and emotional experience. When you look at the bigger picture of a home purchase, “winning” is relative to the buyer’s goals. If the only objective is to buy a specific home, then offering the highest possible purchase price with no offer conditions is the way to go. However, most homebuyers have other goals in mind, such as buying within a specific price point, and a defined timeline for closing the deal and moving in. Then there’s the home itself. Does the buyer intend to fix and flip it? Demolish and build? Or are they seeking a move-in-ready home? Whatever that goal is, buyers should communicate it to their Realtor, who can help strategize on how to reach it.

Part of the Realtor’s job is to approach the transaction in an objective way. This includes the process of real estate bidding and negotiating. To that point, remember that just because someone outbids your offer doesn’t necessarily mean you should volley back. A professional, experienced real estate agent who knows the local market can help you keep your eyes on the prize – which is a home that suits you, your budget, and your long-term goals.

Here are some strategies to help you make a smart bid and if all goes in your favour, a wise purchase.

Know your budget. As a homebuyer, knowing how much you can spend on a home is key. Getting a mortgage pre-approval can provide valuable insight, and this step also guarantees your mortgage interest rate for up to 120 days. When you’re ready to make an offer, despite your eagerness to win the war, so to speak, do your due diligence and consult with your lender before making a firm offer.

Aside from your budget and the amount you’ll need to borrow, also consider what the home is really worth. Your real estate agent will pull recent sales stats, giving you valuable insight on the selling price of comparable homes in the same neighbourhood and under the same market conditions. This can help you determine an offer that you’re comfortable with, and whether it even makes sense to compete against other bids.

Reduce your offer conditions. In a seller’s market, having fewer conditions on your offer can work in your favour. Flexibility on your desired closing date or inclusions could be enough to tip the scales in your favour. In a seller’s market and especially in a bidding war, a clean offer is more likely to win. With that said, we highly recommend making the offer conditional on a satisfactory home inspection. Keep in mind that in a seller’s market, even if you discover issues with the home, you may still not have much negotiating power. However, having this information will help you decide if the home is worth what you’re expected to pay.

Beyond the home itself, keep in mind that location is a huge factor in determining a home’s value. Premium neighbourhoods come at higher prices, thanks to proximity to amenities, green space, transit routes, shopping, services and other factors. Whatever is drawing people into the area is also likely a factor in driving up the selling price.

How do you avoid a bidding war?

Short-term strategy: One trick to winning a bidding war is to avoid it altogether. Make an offer before the home hits the MLS system or gains buyer attention through an open house. Your agent will best advise you on how to proceed, so prepare to drop everything to tour a new listing and make your offer, before someone else does! (Note: Mortgage pre-approval in this scenario is key.)

Long-term planning: The spring and fall real estate markets see the most activity under normal conditions, with buyers out in droves and bidding wars bubbling at the surface. If you’re not in a hurry to buy, minimize your competition and possibly even price by shopping in the “off” season. Winter sees a drop in inventory, but also in demand, reducing your chance of being outbid.

Do your homework. You’ve determined how much you can afford to spend, right? And you know what the home is worth based on the comparables your real estate agent pulled for you. You also know what the home is worth to you, based on your lifestyle, budget and future employment prospects. Make a bid that’s reflective of all of these considerations. Before jumping on the bidding bandwagon, have confidence that you’re getting a good deal.

When asking how do you win a bidding war, remember that the spoils don’t always go to the highest bidder. Know when to walk away. Even in a seller’s market, the perfect home is out there, waiting for you to find it.

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