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How to avoid a bidding war while house hunting

Key takeaways

  • Working with an experienced real estate agent can provide you with valuable insights and strategies to avoid a bidding war.
  • Moving quickly and being flexible in a competitive market is key.
  • Being prepared and knowing the market can help you avoid disappointment along the way in your home buying process.

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. Additionally, just because the price is listed for what is perceived to be a low-price, and the house hasn’t been on the market for very long, doesn’t mean that you should put forth a lousy first offer.

This can quickly eliminate your offer from contention, even if you’re the first one at the table. The buyer will also be more inclined to seek out other offers to compete with yours.

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.

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 their 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 decide on whether it’s worth bidding the property. Having this information could save you from getting your hopes up needlessly.

Escalation clause 

Your agent could also suggest including an escalation clause with your offer that tells the seller what you’re willing to offer over other buyers, up to your maximum budget. Doing this could not only tell the seller that you’re a serious buyer, but it could also provide you with more leverage over other offers.  

 On the flip side of this, if you’re relying on your agent and you don’t think they’re benefitting you because they’re not open to these strategies, or not even making you aware of them, then don’t be afraid to switch real estate agents all together. Your agent should be helping to maximize your chances of acquiring your dream home by arming you with effective strategies and helping you avoid bidding wars.  

Try a bold offer

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.

Additionally, if you waive contingencies and offer a flexible closing date, you could set your offer apart even more. Waiving contingencies like appraisals, financing, and inspections does come with some risks however, so you’ll want to weigh them beforehand. If your closing date is flexible for the seller, they may be more inclined to accept your offer due to the added convenience for their moving process.  

A bully offer is also a bold strategy because it can circumvent the competition. You’d need to make your offer so good that the seller is convinced to take their house off the market.

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.

Buying off-season 

Buying a home at off-season times like August or December can help you avoid bidding wars. These months are historically slower for real estate, so getting in when people are away for summer vacations or enjoying holiday parties can be a good strategy. Keep in mind they’ll be less competition at these times, but also less selection. 

Write a personal letter to the seller

Writing a personal letter to the seller can help make your offer more competitive. Providing the seller with a letter about how you’ll use the space, your love of the neighborhood (great schools, daycares, access to parks and schools) could influence them to be more inclined to accept your offer over others. 

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.

What's next?

  • Continuously monitor the market. Real estate markets can change rapidly.
  • Leverage creative strategies brought forth by your real estate agent.
  • Sometimes bidding wars are unavoidable. Work with an experienced real estate agent that can guide you through the process.

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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