Conventional wisdom holds that buyers should never enter a bidding war. This wisdom is becoming less and less useful in the real world as competition for real estate increases.
Many sellers in fast-growing urban areas like Vancouver, Edmonton, Calgary, and especially the GTA are deliberately under-pricing their property in order to suck multiple buyers into a bidding war. As a result, 16% of all Canadians have engaged in a bidding war at least once in their lives.
The truth is that if you want to buy property in Canada’s hottest cities, you may need to fight for it, and you want to fight to win.
You also want to define “win” correctly.
Looking at winning solely in terms of who gets the house is a sure-fire way to get fleeced.
Instead, think of winning as buying the house for what it is actually worth. To do this, follow these steps:
- Figure out how much the property is actually worth.
- Decide what kind of down payment and monthly debt service you can afford.
- Add up other mortgage costs.
- Add up potential maintenance costs.
- Compare mortgage costs, maintenance costs, property value, and budget to determine the maximum reasonable bid for the property.
- Show that you are serious.
- Have the discipline to back out when your maximum bid is reached.
Hire an appraiser to examine the property and arrive at a figure.
Financial planners or mortgage brokers can help you determine your maximum safe payments. Consult a mortgage broker to find out how much potential credit is available for you to use in your bids.
All mortgages have fees, even ours. Make sure you take these fees into account when determining what you can afford.
These involve both required maintenance to keep the house in good shape, and desired maintenance to turn the house into a place you want to live.
Consider the difference between your maximum bid and the property’s value to be an additional cost, as that money will be lost as soon as the property changes hands. If you are not willing to pay this instant cost, revise your maximum bid downwards.
Try to end a bidding war quickly by showing commitment and professionalism. Obtain pre-approval for a mortgage and send a copy of it with your offer. Make a reasonable offer that acknowledges there are other buyers. Although some sellers hold out for higher bids, most are happy just to know that a buyer will definitely follow through. Keep in touch, write letters, and show that you are upfront and honest.
No matter how much you want the house, another property will come along! Stick within your budget and you’ll win the bidding war no matter who owns the home.