The Canadian housing market has seen record prices over the last two years. With record-low inventories and increasing demand, prices soared from coast-to-coast. It is the perfect recipe to create a seller’s market, meaning that competition for homes is fierce. 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 to win a bidding war.

How does a bidding war work?

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

When market conditions favour sellers, demand is usually up, and inventory is down, which has been the case throughout the pandemic. 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. In a bidding war, there are multiple offers and pressure for potential buyers to compete with one another to raise their bids, pushing the sale price well above asking.

The importance of a real estate agent in a seller’s market

Sellers can only hope to receive multiple offers on their listings. 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. It is the way to get the house you want.

However, most homebuyers have other goals, 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 how to reach it. While you might need to make some concessions, your Realtor will do what is necessary to realize as many of your goals as possible.

Part of the real estate agent’s job is to approach the transaction objectively. This includes the process of real estate bidding and negotiating. They can bring logic to this emotional process and potentially help you avoid a massive financial risk. A professional experienced real estate agent who knows the local market can help you keep your eyes on the prize – a home that suits you, your budget, and your long-term goals.

How do you win a bidding war?

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

Know your budget: Knowing how much you can spend on a home is key as a homebuyer. Getting a pre-approval mortgage can provide valuable insight and guarantees your mortgage interest rate for up to 120 days, which is critical as rates climb upward. 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. This is especially important as housing prices soar, even in smaller communities. Your real estate agent will pull recent sales stats, giving you valuable insight into the selling price of comparable homes in the same neighbourhood and under the same market conditions. This can help you determine an offer 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. A clean offer is more likely to win in a seller’s market, especially in a bidding war. With that said, we highly recommend making the offer conditional on a satisfactory home inspection. Keep in mind that even if you discover issues with the home in a seller’s market, you may still not have much negotiating power. However, having this information will help you decide if the house 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 draws people into the area is likely a factor 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 critical.)

Long-term planning: The spring and summer 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 and 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 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.