Portions of this article were originally published on theglobeandmail.com, on April 1st, 2016. By Deirdre Kelly.
Over the past decade or so, houses in Toronto have routinely sold for over their asking price. You’ve probably heard countless examples of this phenomenon, whether it be in the news or from a family member, friend, or coworker. While steadily growing demand has pushed listing prices up, there’s another factor that’s boosting final sale prices – bidding wars.
While the market may shift or fluctuate, bidding wars are now common practice in Canada’s housing market and represent a significant challenge for house shoppers who are either entering home ownership or moving up.
Driving the upward trend are Toronto and Vancouver, where bidding wars have sparked a buying frenzy that shows no signs of abating.
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Bidding wars are responsible for pushing prices up, often above what a home is worth, experts say. They have turned buying a home in Canada into a game of nerves.
Canada has few checks and balances in place for regulating bidding wars. Often buyers don’t know who they are bidding against and if the other offers are legit. Phantom offers are a big enough problem that last summer the Ontario government instituted new rules requiring listing agents to keep on file written bids and counter bids in an effort to create more transparency around the bidding war process.
Understanding True Value
“Sometimes a property is underpriced [intentionally] and will sell for more than asking, and that sadly has become a marketing tool, allowing the seller and agent to say that they got over asking,” says Richard Silver, an agent with Sotheby’s International Realty in Toronto.
Buyers willing to enter the fray need to know that bidding wars are a lot like gambling: The odds are usually stacked against you.
“The outcome can be unpredictable,” says Leslie Cannon, a Vancouver realtor who has guided many clients through bidding wars in her city’s highly competitive housing market.
Among them is the would-be homeowner who became entangled in an 11-way bidding war that ended up pushing a property $1-million over asking.
“The house was listed around $2-million and I advised my client to offer $2.3-million, which we thought was a pretty generous offer,” says Ms. Cannon. “But then someone, who obviously really wanted the house, went as high as a million over asking, a price that the seller found hard to resist.”
Moral of the story? Money really does talk.
Adding Emotion to the Equation
Fortunately for house shoppers, there are other ways to come out on top that aren’t so dependent on the number of zeros at the end of the offer. Some sellers will choose a lower-priced bid over a higher one, for example, if they have a particularly strong emotional attachment to their home. That’s when having a strategy is key.
For Shawn Lackie, a broker in Ontario’s Durham region, that strategy involves often visiting the sellers to discover first-hand their history as it pertains to the home. “I make sure to at least have a chance to present [the offer] in person,” Mr. Lackie says. “I am trying to create a connection, to find out if the sale can go beyond money.”
He then shares that information with his client to use as fodder for winning a bidding war. The personal touch worked for a client wanting a house in Oshawa, Ont., with multiple bids. The seller chose him over other contenders who wanted to renovate because he had made it known that he loved the house as much as the seller did. He would live in it as is, which is what the homeowner had wanted to hear.
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“Price is often the biggest motivator but anything we can do to make our offer stand out we’ll do,” adds Ms. Cannon, who similarly meets with sellers to gain information that might help her clients seal the deal.
In Toronto, Mr. Silver makes it his business to know the market and advice his clients accordingly.
When it comes to bidding wars, he says it is important to determine “what is true value and what is ego-driven.” If a client wants to buy a house just to win the contest then, in Mr. Silver’s opinion, that’s the wrong reason to stay locked in a bidding war.
“You will never overpay for a house that you love,” he says.
“If the value is there and you don’t put in your best offer, remember that the next time a similar house comes to the market, its price will be based on what you chose not to pay and you will have to pay even more for the next.”
As if buying real estate right now wasn’t emotional enough.
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