If you’re like me and you devour the Real Estate section of your favourite newspaper, you’ve undoubtedly come across headlines such as this one: “Detached Leaside fixer-upper sells for $110K above asking!” or “Mimico bungalow sold for $90,000 more than listed price!”. But what do these numbers really mean? Did someone really overpay by these amounts to purchase both these homes, and if so – why?
Welcome to the crazy world of bidding wars – where frenzy and frustration meet, emotions run high, and everything is not always as it seems. How you feel about them depends on whether you’re buying or selling, and how conservative or adventurous you are by nature…
In a typical Real estate negotiation, the client finds and falls in love with a property, and after doing his/her due diligence, the buyer agent submits his client’s “Offer to Purchase” form 400, that contains his client’s offered price and any conditions and clauses.
While these are all obviously very important to both parties, what often comes into play more than anything else is the Irrevocability that is given by the buyer- that is the period of time during which the sellers can choose to accept, counter or reject the offer. Some offers can contain irrevocables of mere hours while others may be good for 24 or 48 hrs.
What matters here is that from the time a seller receives that form 400, a countdown clock starts ticking. If no decision has been made when that clock hits the “zero hour”, the offer is considered dead and the buyer is free to walk.
Understandably this places enormous pressure on the sellers and forces them to decide between accepting an offer that may end up being inferior to the next one coming down the pipe, or to reject it and risk not receiving another one for weeks or months!
Holding back offers flips this model on its head by forcing all suitors to present their bids on the same day, resulting in a double-benefit for the sellers: they get to sort through the different proposals and weigh the pros and cons of each one in relation to their competitors, and by eliminating the timer which normally works against them, they force buyers to put their best foot forward and reveal their hand right off the bat.
Although this unconventional approach to marketing a property has been around for a while, it’s been more prevalent than ever this year due to the fact that we’re very much once again in a sellers market and there is just very little inventory available out there. Houses that show well, that are in prime or in-demand neighbourhoods, or that may be ready for a tear-down but are located on a great lot are the ideal candidates for this approach.
Knowing that there may be even just one other agent presenting an offer at the same time as yours puts pressure on both sides to up the ante by either removing clauses, increasing the size of the deposit, of the offered dollar amount, or some combination of all three.
Next thing you know, you’re huddled in your car outside the house for sale with your agent, it’s 11pm and minus twenty outside and there are ten other cars with ten other buyers and their agents waiting to hear who’s been picked or whether you’ll be privileged enough to be given the chance to improve your offer…All that’s missing is Michael Buffer standing on the front porch with his megaphone yelling “Let’s get ready to ruuuuuuuummmmmble!”
This, my friends, is what bidding wars are all about, and it’s the reason why if you’re looking to purchase a house in the city or have found a property that is holding back offers, it’s imperative that you talk to your agent and that the two of you put together a strong plan of attack and a sound strategy for dealing with these increasingly common situations…