For the past several years, many home buyers have been challenged with bidding wars on the properties listed on the MLS – which means that the properties are usually sold well over list price. What does this mean to consumers trying to make a home purchase?
When you’ve found that perfect house you’d like to call home, the last thing you want is to have to compete with other interested buyers. But in hot markets where demand overrides supply, this is the new reality. Many homes are listed below market value to attract a large group of bidders and to create a multiple offer situation. In this situation, you should be looking at comparable sales information to determine market value, rather than the listed price.
Here are some tips to help you win the battle:
1. Work with an experienced Realtor. A Realtor with bidding war experience can help you come out on top. You want a Realtor that can negotiate for you and help you formulate the bid they feel will be successful.
2. Research Fair Market Value. When it comes to houses you are serious about bidding on, ask your Realtor to research what the fair market value is based on recent sales comparisons for that area.
3. Shop within your means. If your purchase limit is $200,000, you shouldn’t be looking at properties that are listed at $200,000 – rather, you should be looking at properties that are asking less, but have a fair market value of $200,000 to allow for a winning bid.
4. Get pre-approved for a mortgage. This way you will know the maximum financing available to you. By pre-qualifying for your mortgage, you’ll not only be aware of your offer’s ultimate ceiling, but you’ll shop around and bid accordingly. A pre-approval means that the lender has approved your credit, verified your down payment and employment, and you only require CMHC or Genworth insurance approval of the value of the property. A Accredited Mortgage Professionals can provide you with a pre-approval certificate (subject only to insurer approval). If you provide your Realtor with a copy of this certificate to present to the vendor, this can strengthen your offer.
5. Have funds available to make a healthy deposit! If you can certify the deposit cheque this will carry more weight with your offer to purchase. If your bid is successful the deposit funds will “flow through” to your down payment and becomes part of the deal, but a certified cheque for your deposit speaks highly of your seriousness to purchase and follow through with the sale.
6. Play as clean as possible. Don’t add unusual requests, terms or conditions to your offer.
7. Bid in uneven numbers. Don’t bid $230,000 on a house whose asking price is $230,000 when you’re in a bidding war. If your budget permits, bid something like $231,200. It may seem as though bidding an odd number would make little difference, but not only will your bid stand our from the rest, it may beat an offer that came in at a slightly lower figure (say $251,000) and give you an edge.
8. Revisit the home you plan to bid on. This makes you appear more serious and gives you an opportunity to make an impression on the vendors and their Realtor.
9. Try to meet the vendor’s closing dates – this could be an important trigger.
10. Have your Realtor try to determine how many offers they are expecting. Bidding wars can seem a lot like gambling, but if your Realtor has established fair market value, maybe you can make a bid slightly higher than the fair market value assessment and beat out the opposing bidders. This is when an experienced realtor earns his money – he is working to get you an accepted offer to purchase at a fair price.
11. Be cautious of the “pretty” properties that show triple “A” because of great furniture and decorating and other attributes that are not permanent to the property. Many of the factors that cause a bidding war to escalate are attached to properties who show well and need very little work done to them. Everybody wants these properties and chances are it will be overbid in terms of price.
Before you engage in battle, arm yourself with a pre-approved mortgage, a little research, financial strategies, market value awareness and a great Realtor. With the right tools and team, you could land on top of the bidding war and be in the home of your dreams.