In the real estate industry, when buyers’ demand for homes within a certain market outweighs that market’s active inventory of houses available for sale, this is known as a ‘seller’s market’. If you’re based in South Etobicoke or the GTA — or anywhere else across Ontario, for that matter — chances are you’ll already know all about seller’s markets seeing as ours has arguably been considered one for nearly two years now.
If so, you’ll probably also know how seller’s markets affect local real estate markets too. House prices increase at the same rate as buyer demand — and that’s largely a result of competitiveness and intense bidding wars between buyers.
But what exactly are bidding wars, and why do they happen? To find out more about this common real estate scenario and how you can best navigate through them if you’re a buyer or a seller, I put together this guide to help you out.
What Is A Bidding War?
The definition of a real estate bidding war is pretty straightforward — it’s when two or more buyers continue to make competing offers between each other for the same property. As I touched on before, this typically happens when a home is listed for sale in a hot seller’s market, though can theoretically happen with any listing in any market if the home is desirable enough.
However, it’s much more common for bidding wars to happen when the number of eager buyers outweighs the number of homes available in a certain market. The reasoning is also pretty straightforward; when multiple, highly motivated buyers have a limited selection of homes for sale to choose from, they’re bound to end up competing over the same properties.
When this happens, bidding wars ensue, and they often result in the final sales price of a listing rising to a level much higher than the seller’s original asking price.
Selling your home in a hot seller’s market might sound easy, but there’s a lot that goes into every home sale regardless of the current market conditions. See what I mean by reading my related post, “Do You Really Need To Stage Your Home In A Hot Market?” here.
The Pre-Set Offer Date
Bidding wars are also more likely to take place when the home sellers deploy what’s called a ‘pre-set Offer Date’. Basically what this means is that the sellers have decided they won’t review or consider any offers for their listing until a certain set date and time.
The advantage for the sellers here is that they get to advertise and market their listing to as many potential buyers as possible while waiting until later on to review all of their offers at once. Usually, the Offer Date timeline looks like this:
- ‘Coming Soon’ advertisements for an upcoming listing go live online
- The home is listed for sale at the beginning of the week
- The full home listing can now be viewed online and in-person by potential buyers
- The Offer Date arrives at the end of the week
- Sellers begin reviewing bids from buyers and then ultimately accept one over the rest
By waiting to receive all bids from buyers at the same time, the sellers are able to choose the offer that suits their wants and needs best. Without setting an Offer Date, sellers would instead be forced to make a decision on whether or not to accept a bid before it expires and before they’ve been able to see any other, potentially better subsequent bids.
And of course, when sellers set an Offer Date for their listing in a hot seller’s market, it means the bids they receive on offer day are likely to be even more desirable as the buyers know their offers will be directly competing with one another.
One of the best ways to ensure you don’t overpay for a home is to get a local agent’s insight into the current market value of homes in your desired neighbourhood. If you’ve been browsing for homes in the South Etobicoke area, you’ll find my post on “How Much Are Homes Selling For in Alderwood?” useful.
Navigating Bidding Wars As A Buyer
Needless to say, if you’re a home buyer, bidding wars are considerably less desirable to be in than if you’re the seller. However, that doesn’t mean you still can’t make a winning bid for a home at a reasonable price and well within your budget — all it takes are some smart bidding tactics and shrewd negotiation skills.
As a real estate agent with lots of experience helping buyers navigate through bidding wars and multiple offer scenarios, my best piece of advice is to make your first offer your best offer. It’s important to remember that more often than not, sellers will also be pretty nervous heading into their Offer Date too.
There’s never any guarantee sellers will receive offers that meet their asking price (or any offers at all) when their Offer Date comes around, which is why many sellers won’t want to prolong the negotiating stage any longer than it needs to. That’s also why I always urge my buyer clients to start off with their best bid and hope it stands out from the rest.
That being said, in the eyes of the sellers, the most desirable bids aren’t always the ones that are offering the most money. As the buyer, you can also motivate the sellers to accept your bid if it includes more favourable terms and conditions than competing bids that promise more money.
As a buyer, your best bet is to make your highest overall offer and deposit amount along with few (or better yet, no) terms and conditions included in the Agreement of Purchase and Sale contract. When the seller isn’t required to complete any tasks or pieces of due diligence in order for their sale to become final, you’re always in with a better chance of your offer being accepted.
Are you thinking about buying a new home soon? Make sure you’re fully prepared to enter today’s competitive seller’s market by getting honest homebuying guidance from a knowledgeable and experienced real estate agent. Learn more about my home buying process below, then have a look through my latest collection of featured listings for some new home inspiration.
Navigating Bidding Wars As A Seller
As a seller, the thought of navigating a bidding war can seem easy at first, but there’s a lot more to it than just waiting for multiple buyers to out-bid each other before deciding on the most attractive offer.
For instance, there’s no guarantee you’ll ever actually meet or surpass your original asking price, especially if your buyers feel they’re being ‘used’ by you to foster a bidding war in order to earn more money. Or, if they do catch on to your attempts to create a bidding war, they might submit initial bids that are substantially lower than what your initial asking price is.
Additionally, if your buyers find the aspect of competing with each other too stressful or nerve-wracking, they may feel discouraged to continue submitting improved bids for your home after you’ve rejected or counteroffered their initial offers.
Not all bidding wars result in offers that are above your initial asking price, so it’s important to gauge your expectations and not get overly excited by the results of a potential bidding war. Buying a home is a very emotional process for a buyer, and finding success in these situations as a seller ultimately comes down to being able to strike a balance between encouraging your buyers to submit an improved offer and making them feel like they’re making progress with negotiations.
The last thing you want to do is suffocate all buyer interest out of your listing because you keep pitting your bidders against each other and upping the price. Remember: every buyer has a maximum budget as well as a maximum tolerance for negotiating.
Are you thinking about selling your home in the near future? Ensure you receive the highest possible returns from your home sale by working with an agent with proven negotiating skills and comprehensive experience with bidding wars. Find out more about my selling process and how you can prepare for your upcoming sale here:
- Selling With Confidence
- Preparing Your South Etobicoke Bungalow For Sale This Fall
- 5 Common Mistakes Home Sellers Make