How to Navigate a Bidding War
What is a Bidding War?
A bidding war typically occurs when a seller first acknowledges they have a property in high demand, and then puts the property on the market with a set 'offer date' — usually 5 - 8 days ‘after’ the first day on the market.
The agent representing the seller will usually note the following in the listing: “Offers, if any, to be reviewed on Tuesday the 18th of September at 7:00pm. Please register your offer by 6:00pm.”
Nobody wants to get into a bidding war...except the seller hosting it. And for unprepared buyers, the process can be among the most anxiety inducing aspects of the condo market.
Why Bidding Wars Happen
There are a number of reasons why you may find yourself in a bidding war, but the most common are as follows:
You want to buy a condo in a very popular building (e.g. The Candy Factory, Tip Top Lofts, The Hudson, etc)
You’re entering a market that favours sellers over buyers. There are simply more buyers than there are available properties.
The market may be more or less balanced, but a seller owns a property in a popular price point (usually the lower the price, the higher the demand), such as a junior 1 bedroom or studio condo.
Many frustrated buyers like to blame realtors for instigating bidding wars, however the reality is that most sellers are savvy enough to know when they own a property that’s able to spark one.
They’ll then hire an agent who they feel is best capable of managing the process and prepping the property, so it can attract the maximum number of offers.
Do Offer Dates Benefit Buyers?
Yes and no. A buyer is simply at a disadvantage when competing against other offers. From that perspective, they obviously are of no benefit to buyers.
However, when there are more buyers than properties available, it’s impossible for everyone to win — only one buyer will ultimately secure the property.
A common scenario I’ve experienced that illustrates the benefit of a set offer date (leading to a bidding war), is as follows: a property comes on the market that’s just perfect for a client of mine. The property does not have an offer date — the seller will look at offers anytime.
I immediately notify my client. I explain there is no set offer date and that we should view the property at their earliest convenience, however while my client is very interested, they’re not available to view until tomorrow morning. I book a showing, and later that night I receive a showing cancellation email, stating that the property has been sold, just hours before our booked showing...
Case in point: the one advantage a set offer date provides buyers is a fair opportunity to view the property, and then decide whether or not they’re interested. The buyers will have enough time to prepare their offer and do their due diligence.
When a popular property is listed without an offer date, it can be very stressful for buyers, as they feel they need to drop everything they’re doing to see it before it’s too late.
What if a Bidding War Fails?
A failed bidding war typically looks like this: The seller lists with their offer date set about a week after the list date as usual. The offer date comes and goes, with no offers in sight.
The seller’s agent anxiously calls all of the buyer agents who viewed the property. And one by one, the buyer agents give the listing agent the same handful of responses, such as: “my client isn’t interested enough to compete" or "my client found something else.”
Offer dates usually fail when a seller is greedy, has unrealistic expectations or made the mistake of hiring a realtor who’s just out of touch (like their uncle from Ajax who just happens to have a real estate license and knows nothing about the local market).
Listing a property with an offer date is a high risk strategy. If the seller lists with the wrong price or demand isn't strong enough, good luck.
An offer date failure is often devastating to a seller, as it stigmatizes the property. All of the future buyers will know the property once had an offer date (assuming their realtor checks the listing history), and failed to sell. And all of those buyers will be scratching their heads, wondering, “why didn’t anyone want to buy it? There must be something wrong with the property.”
Offer Date Strategies for Buyers
There are many strategies to consider, and they must really be taken on a case by case basis, depending on your tolerance for risk and the degree of anticipated competition for a property.
If you’re working with an experienced realtor who knows the local market, they should be able to give you a very good sense for the number of offers a property will receive and at what price the property will likely sell. When discussing the price with your realtor, be sure they provide you with data to support it, such as market trends and similar properties that recently sold.
It’s also important that your realtor explain all of the different variables that contribute to an offer’s strength. The price is usually of utmost importance to a seller, but the seller will pay close attention to your deposit amount, whether or not you have it immediately available, conditions (if any), the closing date, and more.
These factors on their own aren’t terribly important, but together carry a lot of weight and can easily tip the scales between your offer and the next one. When the top two offers are nearly identical on price (quite common), the seller will then carefully assess all of the other details.
Final Thoughts
Ultimately, what I stress to my clients is that they know how much they are willing to pay 'before' the offer review process begins. If you’re working with an experienced realtor, they will likely make great efforts to talk with the listing agent to determine whether or not you really need to go right up to your budget limit.
Your agent's #1 objective should be to ensure you're the buyer who ultimately secures the property, but with the smallest price gap between your offer and the 2nd ranking offer.
I always stress to my clients that they set their price cap in advance of the offer date, so they're not at risk of acting irresponsibly with their budget. You want to choose your price cap based on reason (the market, comparable sold properties, etc.), not emotion. And remember, if it doesn’t work out, you’ll know you did your best and there’ll be other properties out there.
I hope you found this article to be helpful! However, this is really just scratching the surface. If you have any questions about navigating an offer date or bidding war, don’t hesitate to reach out.
If you’d like to start with a discussion about your criteria, call me at 902-719-9121 or send an email to jenelle@strata.ca. I’m always happy to help!
