"It's another crazy spring. I’ve never seen prices like this. I keep saying they can't go up, and then they go up," says Holly Chandler, a West End listing and buyer specialist with the Julie Kinnear Team of realtors. "It's crazier than ever. The bidding wars are just unbelievable."
The Eye by Michael Muraz
Millennials are coming into the market looking for homes. The supply of available housing stock is tight. One media report suggests bidding wars have spread to the suburbs as buyers look further afield for an affordable home. Chandler confirms the situation is nothing like before:
Each sale set a new precedent and prices keep going up. We're seeing a lot of pre-emptive bids and bully offers submitted before the offer date.
Bully bids, where buyers act to avoid a bidding war, is one tactic realtors and buyers are using to win hotly contested home bidding wars here. There are many tips and tricks to keep in mind when it comes to fighting a bidding war in the downtown Toronto real estate market here in the spring of 2016.
Julie Kinnear is the team leader, principal and namesake of the Julie Kinnear Team. She taps twenty four years of experience working in the hottest areas of downtown Toronto. She's seen it all and has solid advice for those hoping to win a bidding war.
It's a great year if you’re selling a house. There are bidding wars at every level of the market now. It doesn't matter whether it's a condo, a semi-detached or a detached home, there is going to be a bidding war.
In April the average price for a detached home in the 416 area code surged to almost $1.3-million, an increase of 19 per cent over the same period last year. So prices are still rising. The bidding wars are more intensive than ever.
According to Kinnear, it's important that buyers take every extra step they can to make sure their bid stands out.
Attach an actual bank draft for the down payment
to the offer
This shows the seller there is no financial risk in the bid in hand. According to Kinnear this is a good way to make your bid stand out among others:
As a seller looking at the offers, I will always choose the bid with the already prepared bank draft attached.
You might worry that something will fall through in terms of the appraisal, but in Kinnear's experience having the draft ready really reassures the seller.
"From the listing side clients see that cash-in-hand is less risk," she says. "They know that taking a higher offer with no bank draft is more risky."
Have your mortgage provider do an appraisal
before the offer day
In Canada, a bank offering a mortgage will want to do an appraisal of the property to see what has been bought. Typically this appraisal takes place after the sale. Today, however, the market is so hot, selling prices are turning out to be higher than the post-sale bank appraisal value.
It's a fairly new trend in the market, but deals are now being closed at a price above what banks are appraising homes for. This reality has changed how a buyer should approach the bidding war. Kinnear says it's unconventional, but it works:
If the appraisal is lower than the sale price, the buyer can be ready to satisfy the seller concerning any extra potential funding beyond the mortgage from the bank.
Make it clear you have that extra money
that won't be in the mortgage
In the case of competing bids, the seller will be more likely to take the bid that suggests the buyer is able to finance the extra amount. Kinnear says this is one of the tricks of the trade:
Make it known that you can go to family, or somewhere else, for that extra money that won't be in the mortgage.
Include a personalized note about yourself
in the offer
Personalize your offer. Write a letter and include a photo to give an idea to the seller about who it is moving into the home. Tell them something about yourself.
Kinnear is often involved in deals in the west end of the city where there are many older, established neighbourhoods. The people selling homes in these areas have lived there for decades and are good friends with the neighbours. Kinnear says most of the just don't want to disrupt the neighbourhood:
They want to sell their home to nice people. They want to make sure they're selling to someone the neighbours will like.
Include a personal note about yourself in the bid. This could be the thing that pushes events in your favour. Kinnear has seen it happen many times. She says if there are six bids at the same price, the bid that includes something extra about the couple buying is going to get the nod:
Extra effort is always appreciated by sellers. The sellers were once buyers. They've been through bidding wars and sometimes the seller wants to see the buyer go through the same fire they did. The sellers had to do it, now it's the buyers turn.
You can't attach conditions anymore
Also know that buyers can no longer come in with a bid that has conditions attached. It is no longer possible to offer a price to be paid on the condition that the owner undertakes some bit of care or maintenance. If you need an inspection, arrange that beforehand. According to Kinnear, attaching conditions to a bid these days puts you at the back of the line:
You can't attach conditions. Someone will offer that without and that puts you out of the running. That's been the case for awhile.
If you pull out the bully bid, you have to go big
The other tactic in the bidding wars is the so-called "bully bid"—the Hail Mary of manoeuvres. When you pull out the bully bid, the bidding war has turned into straight-up guerilla warfare.
It works like this: When a house comes on the market, the buyers submit a massive bid in the first two days in the hopes that the seller will take that deal instead of waiting until the offer date and the submission of other bids. By offering a large initial bid, an aggravating bidding war can sometimes be avoided to the benefit of buyer and seller. According to Kinnear, buyers need to go big at the beginning if they want to impress the sellers:
You have to go big on that initial bid. You have to make sure you're getting the buyers attention with that one bid.
Prepare yourself mentally and learn as much
as you can about the process
This is when mental and emotional discipline and fitness come into the process. Maintaining a calm, balanced state is important to winning a bidding war. You've got to apply some mental strength and effort to the process of buying, it's a part of the strategy Kinnear applies:
Getting angry or reacting negatively to the process doesn't help. You have to be prepared for this. You have to know there is going to be a bidding war, and that you might not win it. You have to be ready for that emotionally.
Kinnear's team spends time upfront with clients working to help them understand the legalese involved in buying and selling a house. This is another way to prepare for a bidding war. Learning the terms of the contracts before going into a bidding war saves precious time in the frenzied days around an offer date. Maintaining a disciplined state of mind also helps buyers avoid morning-after remorse.
Only make a bid you can live with
Another tip for surviving a bidding war is to know what you can, and cannot, spend. But according to Kinnear all-in is the way you want to play:
Give it your all. But go in with no regrets. Only make a bid that you can live with. That way you don't feel regretful the next day.
Think of it as a 10-year commitment
How do you know how much to bid in a battle? According to Kinnear, you should be able to say you can stay in that home for at least ten years:
You need to be able to survive a downturn in the market. Prices do go down. You don't want to sell your house at a loss. That is a worst case scenario.
We're not in a market you'd want to assume the prices are always going up. So far they have, but you need to be ready if there is a dip. Kinnear says that today's market has eaten up a lot of value and "it will take a little longer to realize the value that might have been there before".
Waiting for the prices to come down is a big risk
On the other hand, for those who subscribe to the theory that prices will come down any time now—and so it's better to wait to make a bid—there are risks as well. This is downtown Toronto. Prices may be down in other areas of the province, but not here. Prices continue to rise in this particular segment of the market, and for a good reason—people want to live in downtown Toronto.
Kinnear says she's seeing more and more people moving back to Downtown Toronto, after they've tried to live in the suburbs. Downtown Toronto market stays strong even when other segments of the market go soft, and the market is crazier than ever. Toronto has had bidding wars since 1996, but Kinnear confirms that the basic dynamics have changed again this spring:
The market is evolving daily right now. Just because nearby homes were assessed at such and such a price doesn't mean that price will emerge in a bidding war. If that assessment was done six months ago, that's going to be out of date.
Such are the realities of the Toronto downtown real estate market in spring 2016. It's tough. You've just got to get in there and fight if you want to land a home in the downtown core. Going with nothing less than your very best bet is the last tip for winning the bidding war. Kinnear says the sellers might come back for a second round if there are a lot of offers, it has happened before. But it doesn't happen often:
If there are many offers, as a seller I want to ask for more money. But most likely you might not get a second chance. Go with your best bid in the first round. Don't hold back. My advice is it's good to go for it. Stretch. And think of it as a 10-year commitment.