Getting your finances and facts straight can help you survive – or even thrive – during bidding wars for any home, but knowing yourself and working with a trusted realtor are also key.
When you fall in love with a house, logic has a way of going out the window. Sure, you had a budget, but when you find yourself in the midst of bidding wars for an $800,000 property, you may think, what’s another $50,000?
It’s as if all of a sudden your money is no longer real.
And in a way, it isn’t. Most people don’t actually buy houses with money but with debt. They sometimes think whatever mortgage the bank approves is the same as their budget – without thinking through the implications of committing to spend that much on their lifestyle or credit ratings.
Yet anyone wishing to buy a home in markets such as Toronto or Vancouver knows house shopping is a big pot kind of game – especially given the amount of other offers you may be fighting against.
But according to Toronto real estate expert Andrew Bodnar, there are some steps you can take to stay in control of your finances – and sanity – when facing a bidding war on a home you’d like to buy.
- Run your numbers. There’s no point buying a house you can’t afford to heat or furnish. You need to find a balance between paying a price high enough to beat out the competition and one that’s reasonable for you. Know your limit, and know when to walk away.
- Work with someone who has handled bidding wars in that market. That means working not only with a licensed realtor, but also one who works in the city you’re looking to buy in. Markets can vary significantly and require different approaches, so you want someone who understands the game and who can move as quickly as the market does.
- Take stock of the situation. It’s possible to win a bidding war below asking price if you know the market. That includes having a good sense of what the house is actually worth, how long it’s been on the market and how many offers are actually on the table. Such information will give you a better sense about what you should offer. “Multiple offers,” for instance, may mean just another one, not 10, so you may not have to go all in to win.
- Check your emotions. If you see the property you’re bidding on as the home you will have a family in, you may get carried away and overlook the sacrifices you’ll have to make if you commit to a huge mortgage. You need to try to separate the financial and the emotional when making an offer, or at least be honest with yourself about the choice you’re making and why.
- Consider what else you may have to offer. Price may be a big part of the negotiation, but it isn’t the only factor. You can also compete on closing date, financing conditions and the amount of your deposit.
If you’re on the selling side, you also want to make sure you have a plan, because while the idea of multiple offers sounds great, there’s no guarantee that’s what you’ll get.
There’s an element of risk, especially if you decide to hold back offers, or set a date when potential buyers have to put in their bids.
If you don’t get the kinds of offers you hoped for, you may have to pick from less than ideal offers, or risk finding yourself in a weaker negotiating position by staying in the market longer.
Whatever side you’re on, you also want to make sure you protect yourself from unscrupulous realtors. There are basic rules they should follow, including making sure offers are registered with the brokerage representing the property for sale, and that your agent receives notifications about how many offers there are.
You won’t get the details of competing bids, but you can know how many there are and where they’re coming from. If your agent, or the one on the other side, isn’t being open about what’s going on, that may be a sign that something isn’t right.
And while bidding wars aren’t something buyers typically enjoy, Bodnar says, they are a legitimate part of the market people have to deal with, so it’s best to plan ahead and know what you are getting into.
You may even come out on top.