Today, buying a home in Toronto has become next to impossible. The prices of all sorts of homes (detached and semi-detached homes, row-houses, apartments, condo townhouses, condos, etc.) have risen out of proportion and those who are living on rent are going to be evicted due to no-fault eviction ordnance of Toronto.
Out of many pricing strategies present in real estate, there is a strategy that is often used when the real estate market tilts in favor of sellers is withholding offers. This then leads to what is referred to as a bidding war.
Homebuyers that are hopeful in buying their desired condo are no longer unfamiliar with bidding wars. How does a bidding war work in real estate and what can buyers do to bring it in their favor, so they can be successful in buying a condo? Let us now find out.
The mechanism of bidding wars – How does it function?
A bidding war (otherwise known as a multiple offer situation) takes place when the listing agent holds back offers as part of an elaborate plan. It means that any buyers interested in purchasing a residential property are requested to wait until a specific date.
That specific date usually lasts between five to seven days in the market. Such is done so buyers can present their best offer to the seller. This also gives buyers time to preview the listings and their realtor (real estate agent) can perform the due diligence on coming up with the right price offer. Buyers know they will be competing with other prospective and hard-core buyers in today’s tough market.
On the day of the offer, buyers register their offers through their realtors. While buyers will be told how many other offers are being registered, at what rate they are coming is kept a secret. This allows sellers to review a wide range of other offers made by prospective buyers.
The listing agent and buyers’ agents will be in negotiations throughout the offer presentation. Such is done in order to encourage bids that can be close to those that can raise the bar, as set by the seller.
How can a prospective buyer win a bidding war?
Bidding wars can be often running without direction and buyers never get to know what kind of offers they are competing against. But there is not much to worry about as there are some strong tactics that can raise the buyer’s chances of having their offer accepted by the seller.
They are as under:
Tip # 1: Buyers should keep the conditions aside
It is best for buyers to keep the conditions aside when they are in the bidding war. Among the conditions are status certificates, home inspections and the like. When buyers waive off such conditions when making the bid, it means that they have proved to the seller that they are serious in doing business.
For instance, a seller receives four offers for Toronto condos, having slight differences in prices. Three offers have conditions while one doesn’t have a condition. The one without a condition will be attractive to the seller, and they will go for it.
When buyers decide to make a concrete offer, it is important that they are completely sure about moving forward with it. For instance, if the buyer’s offer is accepted but their financing does not make the cut, they are bound to lose their deposit they saved each cent and dollar for.
Tip # 2: Buyers should have their deposit ready
If buyers are serious about the purchase, they should have their deposit funds ready and it’s essential that such be prepared ahead of the date of the offer made. The market norm for the deposit is 5% of the purchase price. If buyers need to move the needed funds from one bank account to another, this can eventually take a few days.
When buyers present their offer, their bank account overdraft should be able to prove to the seller that they mean business. If the offer is accepted, such amount of money is usually needed within 24 hours.
Tip # 3: Buyers should not reduce their bidding amount
At times, listing agents can withhold offers and consequently, they will price it below the fair market value in order to create a competitive offer situation. If buyers are in the hope of winning a bidding war, they should know that making an offer that is C$5,000 or C$10,000 over the listed price is least likely to be accepted.
For their offer to be accepted, the realtor (real estate agent) they trust will work with them to formulate a plan that ensures them putting forward the best they have to offer to the seller.
When buyers have found a home and seriously are considering making an offer, it is best to determine what that residential property is worth to them. They should discuss their absolute budget with their trusted realtor, so they can understand the limitations and opportunities present.
The first offer the buyers make does not need to be out of their budget. However, having a top budget number in consideration gives buyers some space to improve on their offer, if needed. These limitations can help keep them on the right track.
Now, Toronto’s real estate market is becoming the most expensive in all of North America. Tenants are at the risk of eviction through no-fault eviction ordnance which is a cause of concern. The city government of Toronto, the provincial government of Ontario and the Government of Canada are doing all they can to address this issue.
The tips can help prospective buyers understand what it takes to buy a condo and how tricky the process of buying a home is. The bidding wars are not a piece of cake, but confident buyers should not shy away from it. Hopefully, Toronto’s real-estate market will cool down in the coming days.