Scott McGillivray – The Globe and Mail

Whether you are a first time buyer, look­ing for a big­ger home, or down­siz­ing, invest­ing in real estate is a smart deci­sion – but only if you do it wisely. Bid­ding wars, unfor­tu­nately, may be here to stay so here’s some advice that may help you to secure your next property.

1. Crunch the numbers

One of the most impor­tant ele­ments in the process of buy­ing a home, par­tic­u­larly if you enter a bid­ding war, is get­ting preap­proved by your bank or mort­gage com­pany so you know exactly what you can carry – and how high you can go in your offer.

It seems that the list price of a prop­erty is becom­ing less sig­nif­i­cant as buy­ers are shift­ing their focus to the monthly car­ry­ing costs instead. Peo­ple are def­i­nitely will­ing to pay up to 20% more for a home because the monthly pay­ments only go up mar­gin­ally, but this can be a huge prob­lem because peo­ple are over­look­ing the huge sums they are pay­ing over the ask­ing price if they find them­selves in a bid­ding war situation.

So, before you leap into bid­ding war think­ing you’re only pay­ing an extra $85 a month on your mort­gage, num­ber crunch every­thing from gro­ceries to your gym mem­ber­ship to make sure you can afford it. You may find that going up only $85 a month might be more of a stretch over the term of your mort­gage, espe­cially when inter­est rates go up and you’re in a vari­able rate sit­u­a­tion. Don’t cheat your­self out of your expenses just to look bet­ter on paper.

2. Pre­pare and do the legwork

Buy­ing a prop­erty is the most expen­sive finan­cial deci­sion most peo­ple will ever make in their life­time so spend­ing time to research the neigh­bour­hood is so critical.

There is so much empha­sis on house inspec­tions, and there should be, but the same amount of care should also be spent check­ing out local schools, trans­porta­tion links, parks, crime rates, med­ical offices, fam­ily activ­i­ties, seniors pro­grams, day­care and even future hous­ing developments.

Before you bid, be sure you know what you are get­ting your­self into and if it’s worth going over the ask­ing price. If you’re look­ing for a great school for your chil­dren – great, but if you’re empty nesters, you might con­sider another home to avoid pay­ing a pre­mium for access to a school that you really don’t need.

3. Tim­ing is everything

I try to get into prop­er­ties on a Wednes­day so I can put in an offer on Thurs­day and avoid the week­end open house com­pe­ti­tion – or before they are on MLS. It’s a strat­egy that has really worked well for me and luck­ily, I’m in the for­tu­nate posi­tion where I can do a fairly exten­sive house inspec­tion when I first visit the prop­erty. I’ll spend two hours look­ing at a place on my first visit and if I’m unsure about any­thing, I’ll bring in an expert.

By beat­ing out the week­end com­pe­ti­tion, I might not have to enter into a bid­ding war. There’s no law that states that you can’t make an offer before the offi­cial offer date and it really both­ers me that agents hold off on offers to cre­ate a bid­ding war sit­u­a­tion. I’m all for putting in a good, clean offer ahead of the game. Be pre­pared to take a half-day off work or call in sick to go and check out prop­er­ties before every­one else gets to them on Sat­ur­day and once they hit MLS. A good agent should send you prop­er­ties as soon as they are avail­able and prefer­ably before they go public.

Com­ment: It is not pos­si­ble to send prop­er­ties to peo­ple before they go pub­lic. By def­i­n­i­tion, peo­ple don’t know about they before they are pub­lic. The whole “see­ing them before they hit MLS” is not pos­si­ble. Not unless your agent hap­pens to be list­ing some­thing and can tell you about it before actu­ally list­ing it. There is no “secret” list, MLS is the same for agents as it is for every­one else.

4. Real estate agent 101

Hav­ing an agent who has your best inter­est in mind is key to win­ning a bid­ding war. Your job as a buyer is not to seal the deal, it’s your agent’s job and they need to know what your limit it is – and respect it.

If your agent tries to upsell you on the price and encour­age you to go beyond your bud­get, it’s time to find a new agent. The job of the agent is to research com­pa­ra­bles in the neigh­bour­hood and advise you, but you are the one in con­trol of your money.

An agent can access infor­ma­tion that you might not be able to, so use them as a resource and be upfront about how much you are will­ing to spend on a prop­erty. If you’re los­ing bid­ding war after bid­ding war, or you feel that your agent just doesn’t under­stand your bud­get and what you’re after, look around for an agent who does.

5. Stand united and strong

It’s human nature to want what some­one else has and to want what’s in lim­ited quan­tity. Accept this but don’t suc­cumb to peer pressure.

Once you’ve set your bud­get, deter­mine exactly how much you can go over if you end up in a bid­ding war and stick with it. If you’re first-time buy­ers and are spurred on by sto­ries of friends who bought five years ago and just made a ton of money sell­ing their home in a bid­ding war, don’t spec­u­late that you’ll be as lucky in a few years.

The mar­ket will cor­rect itself and you’ll likely see the cor­rec­tion come in cot­tage coun­try and the condo mar­ket before it hits urban areas like Van­cou­ver and Toronto. Be care­ful not to gam­ble away the return on your invest­ment in a bid­ding war. Do your research, crunch your num­bers and pre­pare your offer with an agent who won’t talk you into a deal that might cost you more money than you actu­ally have.

Com­ment: No, the mar­ket will not cor­rect itself. Who says it is wrong now? There are 100,000 sales in the GTA, with at least 4 peo­ple involved in each. That means 400,000 peo­ple are set­ting the cur­rent prices. Plan for prices to flat­ten, that way you will not be dis­ap­pointed. But drop? Nope.

6. Keep it clean

Sur­pris­ingly, not every­one is after top dol­lar when it comes to sell­ing their home. I’ve put in a lot suc­cess­ful offers that may not have been the high­est, but they were the cleanest.

Com­ment: Don’t be silly, it is almost always about price. That is why the bid­ding war is cre­ated in the first place.

A clean offer with pre-approved financ­ing, espe­cially in a mul­ti­ple offer sce­nario, shows the seller that you are seri­ous. Con­di­tional sales and offers that are con­tin­gent on financ­ing just don’t fly when there are other offers on the table. While con­di­tions often get waived in a bid­ding war, I strongly advise you not to waive the house inspec­tion if at all possible.

Com­ment: And there is no point remov­ing one con­di­tion to keep another. From a buyer’s point of view, the more con­di­tions the safer it is. The seller just wants a firm offer. Which is actu­ally kind of dumb. What if the buyer can­not get financ­ing and the deal falls apart on the clos­ing day? Seri­ously bad news for every­one. Forc­ing buy­ers to remove con­di­tions cre­ates an unsafe sit­u­a­tion for everyone.

Per­son­ally speak­ing, I think that home inspec­tions should be reg­u­lated and inspec­tions should be manda­tory as part of the buy­ing process. We’ve all heard sto­ries and I’ve seen my fair share of house inspec­tions that have missed sig­nif­i­cant prob­lems that end up cost­ing buy­ers big money to fix. No one wants to find them­selves in that sit­u­a­tion, espe­cially if you’ve maxed out your bud­get in a bid­ding war, so try to keep that inspec­tion in the offer if you can.

7. Be flex­i­ble

Win­ning a bid­ding war might be as easy as agree­ing to the seller’s con­di­tions like clos­ing dates, buy­ing a prop­erty “as is”, or even offer­ing to move the clos­ing date up if it works bet­ter for the seller. If a seller has already bought another prop­erty and is anx­ious to move on, agree­ing to make the tran­si­tion as easy as pos­si­ble could mean win­ning over a more gen­er­ous offer.

Accept­ing a prop­erty “as is” and lim­it­ing con­di­tions such as request­ing that miss­ing ceil­ing tiles in the base­ment be replaced or the bro­ken bed­room win­dow be fixed might work in your favour too. If your real­tor is privy to any infor­ma­tion about the seller’s sit­u­a­tion and if you can be amenable and flex­i­ble in any way, take advan­tage of the oppor­tu­nity and try to stand out from the others.

Com­ment: Remem­ber, as-is usu­ally means no inspec­tion and no reme­dies for deficiencies.

8. Dig deep

A sig­nif­i­cant deposit can show you mean busi­ness. A deposit should always be pre­sented as a cer­ti­fied cheque.

Put as much as you can afford down, it goes towards your down pay­ment any­way if you get the prop­erty, and you get it back if you don’t firm up on the offer. A clean offer with a large deposit in the form of a cer­ti­fied cheque could mean win­ning the deal over another buyer.

Com­ment: Even though, unlike the US, the seller does not get the money until clos­ing day – when they get all of the money. To be hon­est, there is very lit­tle dif­fer­ence between $20,000 and $60,000 in terms of deposit. Some agents put a huge amount of empha­sis on it, when really it is minor. But, in a bid­ding sit­u­a­tion, it does not hurt to do every­thing you can to make your offer look the best.

9. Write it down

When I was first started invest­ing in real estate, I once wrote a let­ter to a seller explain­ing why I wanted their prop­erty so much – and it worked. So, one of my strongest pieces of advice when it comes to win­ning a bid­ding war is to write the seller a let­ter explain­ing who you are and why you want their home so much. Buy­ing and sell­ing a home is an emo­tional time for every­one – espe­cially if a seller has lived in that home all of their lives and raised their fam­ily there.

Com­ment: And the seller will not have time to read a let­ter when there are 14 offers being pre­sented. Lots of peo­ple bring DVDs with their fam­ily, bake cook­ies, you name it. Silly stunts will not help if your offer is $25,000 less than the top bid.

It’s not always about the high­est offer; it can also be about the most emo­tional plea. I can’t tell you how many e-mails I receive telling me that some­one was suc­cess­ful in secur­ing their new home because they took the time to explain why it was so amaz­ing in a let­ter to the seller. While I advise peo­ple to keep their let­ter to one page, one cou­ple I know wrote sev­eral heart­warm­ing pages describ­ing every­thing about the house includ­ing mem­o­ries from their own child­hood about the neigh­bour­hood, how they envi­sioned their fam­ily grow­ing up in the house and even how the old pool table and black­board in the base­ment would be put to good use.

Com­ment: This does not hap­pen in real life. I just went through a bid­ding war where the owner loved my peo­ple, she really wanted them to have the house. Unless some­one else had a bet­ter offer. Emo­tions are one thing, but $20,000 cash is a lot stronger. Again, some­times the heart string tug­ging can help when it is close, but you have to be in the top group for it to work.

Despite their offer being sig­nif­i­cantly lower, the orig­i­nal own­ers felt a strong con­nec­tion to their story and decided it wasn’t about the money but about the next gen­er­a­tion who would really appre­ci­ate a fan­tas­tic home.

Com­ment: In a movie of the week maybe…

10. Know when to walk away

We all know that bid­ding wars can be ugly. With real­tors who strate­gi­cally set the price of a home below mar­ket value to insti­gate a mul­ti­ple offer sit­u­a­tion, it really is about stand­ing firm and not giv­ing in to peer pressure.

Com­ment: And so many peo­ple for­get that the price has been set arti­fi­cially low. It does not mean that you are pay­ing too much or over pay­ing. What­ever it ends up sell­ing for is mar­ket value, the price an edu­cated pub­lic was will­ing to pay for it. And the next house on the street will use that value to deter­mine how to price their place. And so on… Sell­ing price is mar­ket price, no mat­ter what some peo­ple will tell you.

Your mort­gage, util­i­ties and prop­erty taxes and other debts, or what is referred to as your debt-to-income ratio, should really not exceed 30%, but peo­ple are pay­ing up to 50% or more of their income towards hous­ing – and that’s too high. I will always say that real estate is a great invest­ment but you have to be smart about it and you do need to fol­low the rules.

Know your lim­its, do your research and don’t overex­tend your­self because it will just take you that much longer to see a return on your invest­ment. Buy­ing a home should not be a com­pe­ti­tion. It’s not about “win­ning the bid­ding war” but about find­ing a great place to build mem­o­ries – and equity.

Com­ment: Could not have said it bet­ter myself.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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have some amer­i­can real­tors heard about the bid­ding wars in toronto?

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