If you’ve been paying attention to real estate for the past few years, you’re probably already familiar with offer nights, or “bidding wars”. An offer night is set up so all interested parties have the chance to tour the home before offers are reviewed by the homeowners. Navigating offer nights is not just something we do in heated markets. It’s something buyers encounter when they are searching for high-demand real estate.

While the terms “offer night” and “bidding war” can sound daunting, it’s nothing to worry about. With the right strategy and attitude, they can be tackled with ease! 

Why do bidding wars happen?

Before we jump into how to win a bidding war, let’s discuss why they happen. 

• Low inventory: When inventory is low enough, even market-priced homes will attract multiple offers since the volume of interested buyers outnumber the number of active listings. 
• Desirable homes: Desirable homes attract great attention, even in slow markets. The more desirable the home, the more attention it gets, and the higher chance of a bidding war. In our experience, the homes that attract huge attention are the coveted 4-bedroom homes, on quiet streets, in great school districts. 
• Market Conditions: Sometimes it’s not just about low inventory. With dropping interest rates, or strong economic growth indicators, sudden demand can lead to bidding wars. This happens because many buyers wait on the sidelines and then jump into the market at the same time when there’s news of climbing home prices. 
• Low List Price: Sellers sometimes list below-market value to signal an anticipated offer date.

How to prepare for a bidding war

 Winning a bidding war is not just about money. It’s about preparedness, terms in the offer, and showing the sellers you’re the best buyer for their home. 

Below are some of the steps to prove that: 

• Bring a pre-approval letter: A simple letter from your mortgage broker stating your financial readiness is a great inclusion to your offer. 
• Work with a well-known agent: In real estate, reputation is very important. The busiest agents often do business together, and they trust each other to bring clients that will close.
• Complete your due diligence: thoroughly research the home, confirm the school districts, review the home inspection report, and send the listing to your mortgage broker for a quick review. Your agent should confirm the square footage and any permits taken out on the home. 
• Write an introduction letter: Sometimes multiple offers show up within $5,000-10,000 of each other, and picking between them is challenging for the seller. The fact that you have kids who will go to the school, or you have the same dog as the seller, could put you into the winning position.

Crafting an offer that will win a bidding war

• Attend the open house: Take one of your agent’s business cards and go introduce yourself to the selling agent. The more familiar they are with you and your agent the better.
• Offer a fair price: Price is usually the most important aspect of any offer. Your agent will complete a current market analysis (CMA), which will give you a fair-market price range based on recent sales. But when you’re in a very competitive market, sometimes it is important to ask yourself: “Would I be upset if this home sold for $10,000 more than the fair market price?” If so, it might be worth increasing your offer. 
• Minimize conditions: In some markets, you have no chance of winning a bidding war with conditions. In heated markets, oftentimes sellers will provide a home inspection report for all buyers to review. And, you can speak to your mortgage advisor about the specific home to see if they believe you can remove your financing condition. 
• Offer a decent deposit: Deposits are usually 5% and are due the day after acceptance of the offer. But in bidding wars, eager buyers will include the deposit cheque with their offer. Some buyers will also offer more than 5% to stand out. (Read more about deposits here).
• Match the seller’s preferred closing date: The sellers will give guidance on their preferred closing date. The closer you can get to that date the better.
• Review your offer thoroughly: Mistakes in your offer can hold you back from winning a bidding war. 
• Be available all evening: While everyone wants a quick and easy offer night, it is not uncommon for offer presentations to start at 5 pm and run until 10-11 pm.

Know the rules of the game

Open Bidding Wars: Sellers in Ontario can now hold open bids. However, this is different from an auction. In an open bidding war, the seller has the right to release some offer details with all bidders. But they can be selective about what they share. For example, a seller could receive the following four offers:

• A. $1,200,000; a $50,000 deposit; 6 month closing; and conditional on financing and home inspection.

• B. $1,180,000; a $60,000 deposit; 2 month closing; and no conditions

• C. $1,170,000; a $60,000 deposit; 2 month closing; and no conditions

• D.$1,000,000; a $80,000 deposit, 2 month closing; and no conditions.

In this instance, the sellers can tell all the bidders: “The highest price is $1,200,000, the best deposit is $80,000, the best closing date is 2 months, and we have an unconditional offer.” Clearly, the winning bid here should be B – Followed by C. However, because of the way the information was released, offer B and C now increase their offers above $1.2m.

Bully Offers: Bully offers are named quite appropriately. A bully offer is one that comes before the seller’s preferred offer date. It’s usually a very strong offer – one that the sellers might regret not accepting. Legally a listing agent must show the sellers all offers received, even if they are received before the offer date. However, some sellers will instruct their agent not to present them any bully offers.

 

Get Ready To Win Your Bidding War!

Bidding wars are nothing to worry about. Approach them with a stoic view; whether or not you win the house, at least you gave it your best shot…

• Stay Calm: Don’t get overly attached to any one property until you’ve officially purchased it.

•  Know your limits: Don’t overextend yourself because of anxiety or fear of missing out.

• Trust your agent: Most agents care deeply about the people who choose to support them. They want to get you the best home at the best possible price and terms.

• Get Personal: Try to meet the selling agent at the open house and write a personal letter to the sellers. The sellers know how tough it is for buyers in this market, and we’ve seen many sellers accept the second or third best offer because they had a better feeling about a buyer.