Selling your home is an extremely stressful task, even with the help of a professional Realtor. But entering a bidding war — although thrilling — can add to that stress. However, it could be worth it if it plays out in your favour.
Bidding wars are becoming a more common practice in Canada’s real estate market — especially in hot markets such as Vancouver, B.C., and Toronto, Ont., where prices are high and vacancies are limited.
“Bidding wars are responsible for pushing prices up, often above what a home is worth, experts say. They have turned buying a home in Canada into a game of nerves,” reporter Sean Kilpatrick wrote in 2016.
But what exactly is a bidding war?
A bidding war is when a seller presents their home on the market with a reduced price tag stimulating interest and encouraging multiple offers.
When dropping that price, ask your Real Estate agent to pull a comparative market analysis to be sure you’re not devaluing your home as that can backfire. Instead, be sure that your price represents the best value for the neighbourhood, condition, location and price.
Once the bidding war begins, be cautious. Take it slow. Sometimes the highest offer presented by a prospective buyer isn’t the best offer available.
Sellers are typically looking to make as much of a profit as possible on the sale of their home, but getting excited too quickly over a juicy offer may make the seller jump too soon. This may mean potentially missing out on higher offers.
Nathan Dautovich, the franchise owner of Downtown Toronto propertyguys.com, told Huffpost sellers should avoid selling their home in a bidding war.
He said many who opt into a bidding war often skip over a thorough analysis of other options.
“When I help people to sell their homes privately, we always look at all relevant sales and get a market evaluation through the help of an appraiser,” he said. “We look at homes that sold through bidding wars, and also homes that sold using a more traditional method.”
“In almost all cases, we’ve found that on average, houses that sell using the traditional method have a higher success rate, and they also sell for a higher price,” Dautovich added.
Here’s why Dautovich thinks that is: having a limited timeline for showings in bidding wars means that potential buyers are also being limited.
What if, for instance, the perfect buyer was out of town that week? Now, they’ve missed out on that property entirely.
Or, what if the potential buyer is turned off by bidding wars all together and choose to skip putting in their bid — even though the home is perfect and they could have potentially paid the asking price.
Dautovich also warns that bidding wars can create opportunities for a bid that is too high and once the appraisal returns it may not match the purchase price presented and therefore the funding won’t be approved by the lender. This doesn’t help the seller at all. Now, they’ll have to accept a lower offer because it the bidding war went too high.
He does suggest that a bidding war is a valuable option for sellers who are looking for a quick sale. But, again, this comes with a price.
For bidders and potential buyers, there are some things to keep in mind. Your budget, for one. Don’t bid out of your price range. Set a “cap bid.” Your first offer can be higher than the asking price, but be sure you stick to your guns and don’t bid yourself into a place you can’t come back from.
Similar to gambling, bidding can be ego-driven. Keep your goals in mind, do your research and be sure you’re bidding for the right reasons. Do you absolutely love this home? Can you picture raising your kids here? Can you see yourself hosting friends and family for Thanksgiving dinner in that dining room? Keep these in mind and stop bidding if the prices jump too high.
A lot of Realtors will recommend to their clients to make their bids personal. They often suggest writing a “love letter” to the home. Talk about how swoon-worthy the neighbourhood is and what you love about the home specifically.
If your lucky, the letter may warm the heart of the seller enough to pick your offer over a higher bidder who may just have plans to demolish and build an infill.
Sometimes it’s not all about the dollar signs and zeros. Sometimes the seller is genuinely seeking someone who will love their home just as much as they have for all of these years.
To summarize, there are definitely benefits to entering into a modern-day bidding war. There is the potential that you can get a lot more than your asking price. However, there are some serious risks involved.
Bidding wars, like gambling, can go either way — although, yes, the odds are more in favour of the house!
(But, we’ve all seen movies where the house loses big time. No one wants to be that house.)
I digress. There are risks involved…
Like Nathan Dautovich said, due to the restrictions set around a bidding war, the seller could potentially be missing out on the optimal buyer. Whether they’re out of town and miss the deadline, or are deterred by the stresses of playing the odds, you — as the seller — don’t want to miss out on the perfect buyer.
So, enter at your own risk. DO Hire a professional to help you along this journey and advise you on best practices. And, at the end of the day, keep those fingers crossed.