Although we have gone through unprecedented times living through the unexpected COVID pandemic the real estate market has jumped back surprisingly quickly. With the economy opening up we are seeing pent-up demand putting pressure on the hot southern Ontario real estate market. What is driving the market in a short supply of homes and many buyers looking to buy a home?
We are officially in a seller’s market with high demand and a low inventory of homes. In a seller’s market, there are many buyers interested and putting offers on one home, hence a bidding war. In this situation, buyers try to sweeten their offer to stand above all other offers.
Although there isn’t a science behind winning a bidding war, there are steps that you can take to increase your odds of getting that dream home.
Increase Your Offer
In a bidding war money talks – normally it is the highest offer that wins. Your best bet in winning a bidding war on a home is to offer more money than the other offers. Depending on the home’s price, location, and how high the demand is for the home will determine how high you should go with your offer. Don’t lose sight that just because you are willing to increase your offer for the home doesn’t mean that the bank will be as eager to support your decision. Don’t lose sight that the bank will only approve a mortgage on the house based on the market value for the home and hence what the house is appraised for. So although you may have been approved for a mortgage the house value needs to also support the amount of mortgage the bank may be willing to approve. So if your offer gets accepted and your offer is above appraisal value the extra amount may have to come out of your pocket.
Make Sure You Are Pre-Approved for a Mortgage
Sellers want to ensure that when an offer gets accepted that the buyer will be able to fulfill the purchase contract. Hence, it is critical that you are pre-approved from a financial institution clearly stating that you are able to borrow enough money to purchase the home. Sellers are more inclined to accept offers from buyers that are pre-approved and reduce the risk that the sale may not be able to close due to financing.
Increase Your Offer Deposit
If you are in a competing offer (bidding war) situation, it can be very helpful to increase your deposit commitment. A higher deposit provides the Seller with confidence that you are serious and that there will be less risk of you wanting to back out of the deal and also the bank raising concerns on selling price.
Conditions are certain activities and things that must be met in order to close a deal on a home. If the conditions are not met, the buyer can back out without losing their deposit. When you are in a bidding war in order to get the home it may require waiving conditions (such as the financing and inspection conditions) as the seller will want to ensure that there are no deal-breakers and want to increase the likelihood that the deal will close without any hiccups. It will still be possible to back out after waiving the conditions, but you risk losing your deposit and possibly incurring other liabilities should the seller decide to take you to court.
There is however a risk in waiving conditions. Your conditions will reassure you that the bank will approve the mortgage on the home and that structurally the home is in good condition so that you do not run into expensive and unexpected repairs after you take possession of the home. However, waiving one or both conditions in a bidding war could be the extra edge you need to get the home.
Have Your Home Inspector on Speed Dial
For both a buyer and a seller, a home inspection is a hurdle that must be overcome for an offer to go firm. Quite often offers with an inspection condition will lose out to offers that do not have any conditions even if the offer price is a couple of thousand dollars less. Why you ask – because the sellers want assurance that the offer will result in the sale closing. An offer with no conditions takes away the seller’s worry that by accepting an offer and taking their house off the market they are wasting time that could be spent getting a better offer.
So how do you get around possibly losing out on your dream home and still have peace of mind? The best option is to have an inspection completed in advance of submitting an offer. If the inspection goes well you can place an offer with confidence that you will not run into expensive surprises once you take possession of the home.
Get Personal and Intimate with Sellers
In bidding wars money is pretty much always going to be the final deciding factor in having the seller accept your offer, it however never hurts to tell the seller a little bit about yourself and your family as sellers most likely have an emotional connection to the home. If you love the home, let the seller know in a personalized letter. Be honest and open about why you feel so strongly about their home and why you think you’re the perfect buyer for their home, be emotional, and describe your family. This approach may not work for all sellers (particularly investors) but families that feel a strong connection to the home want to ensure that the new buyers will cherish the home as much as they have.
Winning a bidding war takes a combination of strategy and luck. A realtor will help guide you through the various steps in a bidding war and also recommend tactics that will increase your chances of getting the home.
Stay confident and calm and if the home is meant to be yours, it will all line up and happen for you. And if it isn’t meant to be it is because there is another better home waiting for you.