All about real estate bidding wars and how to win them

Updated: Nov 30, 2019


The volatility of the Toronto and Ontario housing market has caused some peaks and valleys for both buyers and sellers. While bidding wars seemed to be par for the course when the Toronto market was at its seemingly unsustainable peak in 2017, they settled down as more people became a little nervous about pricing. However, in the world of real estate, when demand rises, so too do prices and bidding wars.


Late this summer, the bidding war returned as supplies lessened and more affordable homes become rarer. Whether you’re buying or selling in the GTA, you’ll need to understand why bidding wars strike horror in the hearts of buyers and make sellers high five their real estate agents. More importantly, we’ll show you how to win a bidding war, regardless of what side of the table you’re on.


BIDDING WARS ARE JUST MULTIPLE OFFERS

A bidding war is a more aggressive term for multiple offers. When a property has interest from more than one buyer, each buyer will put in an offer. When this happens, anxious buyers worried they’ll miss out on their dream home will put in the best offer they can afford, and sellers look at each offer to find the one that appeals to them most.


SELLERS’ BEST SCENARIO

As a seller, bidding wars are something they love to see. Of course, they have little to lose in this scenario as their property is in demand, and buyers are willing to fight for it. Their ammunition? Money. However, it’s not just limited to the amount people are willing to spend, but the conditions they are willing to waive. This allows sellers to look at conditions that best suit their needs.


When bidding wars become more common, it’s what is called a sellers’ market as there are more buyers than there are homes.


WITHHOLDING OFFERS

A common strategy in a sellers’ market is “withholding offers.” Your real estate agent will set a deadline for offers, getting buyers to compete for the home. Buyers work with their agents to come up with their best offer on price and conditions, so they increase their odds of winning. Although this might sound good in practice, it only works for properties buyers want. So, for example, if your home is overpriced, there are too many other properties available or your location isn’t perfect, you might not start a bidding war at all.


BULLY OFFERS

Buyers who are overly keen on a property can consider putting in what’s called a “bully offer.” This works as a pre-emptive strike allowing you to register the offer before the seller has time to set a deadline. When buyers are frustrated by losing out on too many bidding wars, they might become battle fatigued and just want to get a property without the frustration. However, this is not always the best way to proceed as you could miss out on more affordable and more suitable homes in the near future.


Basically, the bully offer tries to force the seller to accept an offer they can’t refuse. In the perfect case scenario, the buyer puts in an offer higher than asking, but lower than the price a bidding war would typically demand. Even the seller still comes out ahead as the home sells fast, and they still get above asking.


As usual, it’s buyer beware, as you could end up paying more than you want, and might even do so for a home no one else would have wanted. And sellers, you might as well wait and see what happens on offer night, because the same buyer will still show up if you refuse them, and you’re more likely to get a better price.


Keep in mind that many real estate agents view bully offers as unethical, so much so that they have asked the Ford government to ban them.


THE NEGOTIATIONS


In Ontario, multiple offers are “blind” meaning that you won’t know what other buyers are offering. Although you’ll know how many offers there are, you won’t know the details, nor will your agent. As well, it’s not uncommon for more offers to come in even as your agent is sitting at the negotiation table with the sellers. They will be informed as the offers come in, so you’ll know what you’re up against.


Your agent will present your offer along with the rest of the competing agents. The offers are reviewed in the same order they were received. If you find out other offers come in, you have the right to change your offer to remain competitive.


Blind bids are another strategy being reviewed for a potential change in an effort to make the process more transparent for all involved.


ESCALATION CLAUSE

An escalation clause can be used in a buyer’s offer to help defeat competing offers. The clause increases the buyer’s purchase price in a set amount of increments automatically using a pre-set amount designed to outbid competing offers. Buyers can cap the price they are willing to spend protecting them from going beyond their means.


Once the clause is added, a buyer can’t revoke their offer before the offer deadline, which means they could be stuck with their capped-price until the bidding war ends. This could lead to paying a higher price without need. However, if the seller sends the offer back for reconsideration, at this time the buyer can remove the escalation clause if they wish.

Escalation clauses help if the buyer’s initial offer is lower than everyone else’s allowing them to in essence continue to up their bid without too much back and forth. However, in the case where someone’s offer exceeds your cap, you would still lose out.


HOW TO WIN A BIDDING WAR

It’s our job as real estate agents to help you win a bidding war, but also to make sure you don’t overpay. This is because we don’t want to see our clients end up with a property that could cause them to lose money when they sell.


Some strategies we’ve used with some of our customers at OnlyWith.ca include:

  • Setting a budget so you avoid overbidding

  • Reviewing how new higher bids will affect your mortgage payments so you don’t end up with a mortgage you can’t afford

  • Advising you of your best offer limit so you go in strong

  • Keeping everything strictly business so you don’t make an emotional bid that could cause you to lose out or overbid

  • Providing the most seller-friendly conditions to sweeten your offer beyond just dollars and sense, while also protecting you from bad decisions such as waiving the inspection

  • Coming to the offer deadline with a certified cheque to make a deposit there and then to show the seller you mean business

A bidding war is something sellers long for and buyers dread. Having an experienced real estate agent by your side will help you come out ahead regardless of whether you are buying or selling.


At OnlyWith.ca we have experience in navigating the challenges of a Toronto bidding war. We can assist in your home search and prepare you for tough negotiations to help you get the home of your dreams. Reach out to one of our agents today so we can help you find your home.

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OnlyWith.ca provides a fresh and friendly approach to the real estate market. Our aim is to provide the best knowledge and customer service in helping you with all your property needs. With experience since 1987, our team is here to find a property that reflects what you want, all within our incredible home.

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