Insights & advice

How to avoid a bidding war while house hunting

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Buying a home in Canada’s biggest cities can be both exciting and challenging.

Prices have gone up significantly and stricter mortgage rules are now in place. This leaves potential buyers with a major challenge to find a home.

Complicating things are bidding wars that can leave buyers with frequent disappointment when they repeatedly come up short for houses that should be in their price range.

Despite a recent cooling in the market, it’s still easy to find yourself in a situation where bidding against other buyers can get out of control. That said, there are some things you can do to try and avoid bidding wars.

Understand what the list price means

Most buyers have a list of needs when looking for their home, but each search typically begins with a budget.

If a buyer has a budget of $600,000, they probably wouldn’t see a house listed for $699,000. Instead, they would likely look at homes in the high $500,000 to low $600,000 range. This is when bidding wars can happen.

Often a seller will list their home for significantly lower than it’s worth in hopes of creating a bidding war. Listing with a lower price increases interest in the house and can better the odds that multiple people fall in love with it.

Low-ball listing

For example, a seller might believe they can get around $700,000 for their home, but list it at $599,000. This brings in people with a budget of between $600,000 and $700,000, essentially doubling the number of hopeful buyers.

When the bidding is completed, the seller may get more than the $700,000 the house was worth, leaving those with budgets closer to the listing price disappointed.

"Sometimes a property is underpriced [intentionally] and will sell for more than asking, and that sadly has become a marketing tool, allowing the seller and agent to say that they got over asking," Richard Silver, an agent with Sotheby's International Realty in Toronto told the Globe & MailOpens a new website in a new window    - Opens in a new window .

A good way to avoid falling into this trap is by researching recent sales in the neighborhood. If all the houses in that area are selling for more than $700,000, then there’s a good chance the seller is listing at $599,000 to start a bidding war.

Rely on your agent

Your real estate agent’s job is to search for homes in your price range and in your desired location. However, they also should provide you with other information about a house.

They can connect with the selling agent to potentially get a better picture of what the sellers’ motivation is for putting their house on the market.

The selling agent may discuss how quickly his clients want to sell or if it will take a much larger offer than the listing price to get the home. You might think a house is in your price range, but the seller may be in no rush to sell and looking to cash in on a competitive market.

If you have a better idea of what number it’s really going to take to get the house, you can make a decision on whether it’s worth bidding the property. Having this information could save you from getting your hopes up needlessly.

Try a bold offer

This is a strategy that gets the seller thinking.

Some sellers set a date, usually a week after their property hits the market, to accept offers. A bold offer is made before then and is usually above the asking price. This means your offer will likely be one of the first a seller sees. They’ll have time to think about accepting it, or risk getting less on the scheduled offer date.

You won’t necessarily enjoy an amazing deal , but there’s a possibility the seller could be happy with the number they see and jump on it without taking bids. This way you don’t have to deal with the frustration of going back and forth during a bidding process.

There’s not a lot of downside to this approach. If your offer is rejected, you could always put in another when bidding opens. The seller may even come back to you if they don’t like what they see from all the bids.

Consider the home’s potential

You might think a house that isn’t move-in ready and needs a lot of repairs wouldn’t be in high demand, but that’s not always the case.

If you think there won’t be many bids on a house because it’s in rough shape and you may escape with a steal, keep a few things in mind. First off, pay attention to the area. Are there other houses in the neighborhood that have been rebuilt lately? It’s possible a builder has eyes on the home to tear it down and rebuild from scratch, only to flip it for a quick profit. If that’s the case, you can expect that builder to be prepared to place a high bid.

It’s not only builders you have to watch out for in these situations, as investors may also view a fixer upper as a potential goldmine. If the house has a separate entrance for the basement and doesn’t need too much work, someone could purchase the home to use as a rental property. Investors like this can also bid high, as they will likely have renters helping to pay off their mortgage.

Sometimes a home is much more attractive than its outside appearance shows, and if you see potential in it or the property, chances are others will too.

There’s ultimately no perfect solution to avoiding a bidding war and house hunting is not easy, but learning to anticipate what homes will likely sell for can hopefully help you avoid disappointment along the way.

 

This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.

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