21 Tips to Help You Win Bidding Wars REVISITED
I thought that it would make sense to have a look at this topic once again. Several years ago, I wrote a article that was quite popular. The question outstanding is how much is still relevant today?
The article was written upon the assumption that you did indeed wish to participate and you wanted to WIN.
So, this time we are looking at the same 21 Tips, but with an extra view of caution. This time we are looking to the 2014 Bidding War environment in Toronto and the GTA.
As we enter the Spring market, there’s a shortage of listings. Again, that’s good for sellers and not quite so good for buyers.
Here’s the original article with annotated 2014 updates in yellow:
Everyone wants to win the bidding war, but just how do you go about it.
So, here are some of the Tips:
1) do your homework
You have to know the property and the neighbourhood ahead of time. Trying to find this information out at the last moment can be both risky and fatal. In most cases, you might have put in another offer on another property in neighbourhood earlier. At least, this way you will have had some experience.
Still good advice.
2) eliminate conditions
These are the particular matters that the vendor doesn’t want to see. So,
conditions such as home inspection, financing and lawyer’s approval will just have to go.
Most of the time in sellers’ markets, these conditions will not survive. That’s because, some other buyer will be willing to leave them out. But, that doesn’t mean you should. Be cautious, otherwise you may end up with a headache and a property that you don’t want.
3) inspect the property
The mere fact that you can’t place a condition in an offer that you want to have a home inspector look at the property, doesn’t mean that you simply have to accept this risk. Take him with you! I appreciate that you will have to pay for the inspection, whether you are successful or not, but it’s well-worthwhile. If you don’t have a qualified inspector, then at the very least take a contractor with you. You need to know the condition of the building ahead of time. And, so what if somebody else decides to overpay.
Don’t take this condition out, unless you are absolutely sure about the physical condition of the property. And, it’s not just the “walkthrough”. There are secondary tests and inspections for all kinds of faults. So, if someone gives you the “heads up” about any of these, then get that secondary inspection done.
4) get pre-approved for financing
Actually, this is the easiest step. Get your financing in order. Make sure that you have the money available. Rarely, if ever, will a financing condition be accepted in the context of a bidding war. So, attend to this issue now, while you still have plenty of time.
A pre-approval is not a commitment. Be sure you know the difference.
5) get your lawyer’s advice in advance
Go over to your lawyer’s office and explain what you need. If there are some
particular clauses that need to go into the agreement, then, let’s know about them now. The next step will be to run those clauses by your realtor. Will they “fly” or will your offer just be laughed out of the room? There’s really not much point going to all this trouble to enter a bidding war with a one-sided contract in your favour. So, let’s figure out the legal wording in advance.
Legal advice in advance is far better, than a legal opinion telling you what a mess you’re in. So, now’s the time!
6) make your price better
This is crucial. Frequently, this is the only determinant of the successful bidder. So, spend some time here, figuring out your price to submit. Sometimes, just a few hundred dollars more is all that’s necessary. Pick a figure that is just a little more than the competition.
This is easier said than done from your perspective. But, it’s your money, not mine. So, I say “up the price”.
7) make your conditions fewer
There are also some usual conditions contained in a standard form offer. You might be able to eliminate some of these as well. This involves issues relating to zoning, present use, legal non-conforming uses, title related problems, covenants, easements and insurance.
Still makes good sense. Solve as many issues as you can, in advance of the offer date.
8) increase your deposit
All things being equal, the bigger the deposit, the more serious the buyer looks. This is particularly true, if there had been a previously defaulted transaction. This simple gesture (assuming you are truly serious) can frequently make the difference. And, a lower bid with a $50,000 deposit looks a whole lot better than the high bid only a few hundred dollars more with a $25,000 deposit.
This will make your offer attractive, so it’s still worthwhile.
9) make your closing sooner
Remember, of course, that time is money. So, if you offer to close at the beginning of May rather than the end of June, the vendor will have about two month’s worth of interest on the closing funds in your deal compared with someone else.
Still makes good sense in 2014. But, remember to make sure that the seller sees the monetary value in their own pocket. Otherwise, they could think that the earlier date benefits you and not them.
10) market yourself
It’s not the stock market; vendors actually care who they sell their properties to. Make sure that your agent knows all about you, your family, who will be living there and how much you like the property. All these things are appealing to the vendor. All things being equal, the vendor will prefer to sell to the buyer who loves the decorating and the landscaping rather than the one who says that there’s a lot of work to be done.
This can still work in 2014.
11) accept some risks
This isn’t just straight gambling, but you have to generally be in a mindset that allows you to accept the reasonable risks of the business. This means price increases and decreases, mortgage rate fluctuations and so on. Think of yourself, already as the owner of this property!
Assuming that you have eliminated the “silly stuff” on the low end, the big serious risks are still the big serious risks.
12) solve some problems
The vendor may have some issues related to the sale. Try to find out about as many of them as possible. This will give you an edge. For example, the vendor’s new house is closing on the 15th of June, but the children are in school until June 30th. Why not consider a closing on the 15th and permit the vendor to occupy the premises rent free until the end of the month. That provision will save the vendor a lot of money and distinguish your offer from the rest.
This still makes good sense.
13) be flexible
You might include a provision which will permit the vendor either to advance or delay the closing. Let’s say the vendor is buying a new house. Will it be ready in time? Your clause permits the vendor to stay in charge and arrange one simple move from their present house to the new one. Sure, you’re inconvenienced a bit, but you got the deal.
Flexibility will work in your favour.
14) know your limit
This is not the time to get swept up with emotion. Determine the value, estimate a logical and appropriate premium, and that’s it. It is still only worth it’s true value. That will form the basis for mortgage financing. You’re on your own when it comes to the “premium”. So, be careful.
At some point, there’s a “top end”. Figure that out, and don’t go above it. There are lots of other properties. This one is “nice”, but I’m sure that there are others, just as “nice”, maybe even better.
15) know the competition
This is often a question of “same-old, same-old”. You are facing the same
competition as the last offer on the place around the corner. The high bidder’s out of the picture. Where were you last time; the low bidder or the one in the middle? As each deal gets done, that drops somebody out from the top. They already bought their house. Now, maybe you don’t have to stretch quite so much.
16) know the agent
The listing agent will be in control of the process. Try to obtain as much
information as you can. This person will be the primary source of information about the vendor and your competition. So, stay alert and pay attention. Even if they don’t say anything, that may mean something.
Still makes sense.
17) be present
This is not the time to fax in your offer. You want to be closeby, if any changes are immediately required. Faxes are fine, if there’s no competition. Being close proves you are a serious buyer to the vendor.
This can be a “plus”.
18) watch the changing market
Maybe the market starts to tip over. Will you be aware of this? Don’t just assume that everything is always going up and up. The market might start to drag a bit, and you need to know this. Will there be as many bids, this time? Have interest rates constrained some of your competitors?
2014 is different from previous years. Be absolutely up to date with your facts and information. Don’t lose sight of the “big picture” while you are counting the number of cabinets in the kitchen.
19) consider an escalation clause
This is a clause that moves the price up to match another bidder’s offer, andoutbid it by perhaps $500. However, any type of clause such as this needs to be very carefully worded. Also, it needs to include a limit on the upside.
This could be risky. I added that tip when this article was originally written because many people didn’t know about it.
Here’s the problem: it may be “illegal”. And, that would not be helpful, since your Offer would not be capable of acceptance. Remember, the tip about getting legal advice (#5). Well, this would be a good point to discuss.
20) consider a pre-emptive attack
If this is truly war, then why not consider the “bully offer”, this is the one that is so good, that the vendor thinks it will be the best, however, it expires before the bidding war begins. It might just work.
Bully offers are still around, and they can work in 2014. I don’t like them because the seem to reward the bad guys and punish the good guys and undermine the integrity of the system at the same time. But, this isn’t about ethics, it’s about getting you the property.
21) pick a good agent
You want to have the best person representing you at the table. This means someone who is professional and well-respected. The agent’s conduct will reflect upon you.
1) get the signback,
2) secure control
This is the basic strategy that you want to implement. You want to be in a
position to make the decisions. So, you are really just looking for a signback.
Then, you can make your decision.
Also, you should bear in mind that even if you did not have the successful bid, maybe you won the war anyway! A terribly overpriced property just isn’t worth it.
This advice still stands the test of time.
The Real Estate Council of Ontario (RECO) had identified a series of problems with the bidding war process. Were those bids fake or real? How do you protect both e buyers and the integrity of the system.
Changes were proposed to the Real Estate and Business Brokers Act, 2002. The Act (part of a Bill related to Consumer Protection) was passed and received Royal Assent on 13 December 2013. Now, we are just awaiting the changes to the regulations.
These changes will require brokerages acting for sellers to retain copies of all offers. This will make the process subject to audit and review. Inspections later could be undertaken by RECO to ensure compliance.
But, until we actually see those regulations it’s still the “wild west”!
Brian Madigan LL.B., Broker
If you are buying or selling in the GTA, either residential or commercial properties, buying from a builder, investing in a condo, or just require general advice about the market, then please give me a call.