Monday, March 10, 2014 10:10 AM EDT
If you’ve entered the house hunting ring, chances are you’ve encountered your fair share of multiple offer bidding wars. The predominant sales technique for freehold houses is to list the property and then have a blind auction one week later. When inventory is low and prices are high, the competition is heightened and buyers will often find themselves in aggressive multiple offer bidding wars. For seasoned veterans and industry insiders, there are a few techniques for outsmarting and avoiding the stress and frustration of a bidding war.
1. Know Your Finances and Have a Pre Approval Done
There is no point in viewing homes until you have been pre-approved by your bank or mortgage specialist. If you do not know your price parameters, then how can you bid? Offers are often firm (no escape clauses/ conditions for financing), so you need to know your amounts so you don't get caught buying a home you cannot afford. Be sure your agent knows your down payment amount and flexibility, as if the home goes through an appraisal after purchase, and comes in lower than what you paid, then you have to cover the difference. This is especially important for buyers with only the required 5 per cent down payment as funds, as they have little flexibility.
Know your finances and bid accordingly. Be aware that an offer with a financing condition has very reduced chances of winning.
2. See the Home as Soon as Possible.
I always recommend my clients view the home as soon as possible. Firstly, it gives them time to think about this purchase or have a return visit, as it is typically the largest purchase in one's life. Secondly, it gives my clients time to follow the remaining four steps.
3. Home Inspection
Often the Seller will provide a pre-list inspection. Be sure that the inspection is a from a reputable company, as you are relying on this for document to state the condition of the home. I often advise my clients to get a secondary inspection, if I feel the inspection is lacking or from a questionable source.
If a home inspection is not provided, then the buyers have to book there own and have it completed before the presentation date. The purpose of the inspection is to be satisfied with the condition of the home, so that that on offer date, there is no home inspection clause. Ideally all offers should be firm offers—no escape clauses or conditions for the buyer.
4. Deposit Herewith
Sellers often request that the cheque be herewith, meaning that the certified deposit (typically 5 per cent of purchase price) is brought to the presentation, and handed over to the seller once the buyer's offer is accepted. Be sure to have your funds liquid in your account to make this certified cheque ready for presentation day. Often sellers will choose offers that bring the certified cheque and have no conditions even if the price is not the highest. Sellers are fearful of rejecting firm offers for speculative ones, and losing the firm offers.
5. Be Sure to Get a CMA (Comparative Market Analysis)
Your agent should provide you with all the recent sales in the neighbourhood and explain how they justify the value of the subject home. The comparative market analysis does this by comparing recent sales of similar homes in the neighbourhood to come up with a value for the subject home. This is the starting point for multiple offers, as offers will bid up from this value. The advised offer value based on number of bids is called the market value.
6. Be Clear about Your Motivation Level
Although your agent will provide you a comparable value based on recent sales, and should also give you an indication of the market value based on the number of offers, you need to be very clear about your motivation. As a realtor, our job is to stay objective, but we need to know your level of motivation based on unquantifiable data. We can value the home on number of baths, parking, bedrooms, etc....but if you just "feel" this is the one, or you just love the tree in the yard that creates your afternoon tea-sipping shade, then let us know. I often will tell my clients a pricing level that indicates what is required to be "in the game", "rolling the dice", and "slam dunk". If the home is "the one" then I will advise closer to the slam dunk range (maximum reasonable valuation) versus a home that my clients want, but only at a reasonable deal price. Occasionally we may still lose out at the slam dunk level, but then the house was better lost, as the pricing was unwise to purchase at such a premium.