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Bidding Wars

After see­ing the arti­cle in the Star about the woman how had to com­plain to RECO after los­ing her first and only bid­ding war, I am a lit­tle peeved.

Trust me, I know how you all feel. I bought my own house in a bid­ding war, I paid over ask­ing for it. I had no finance or inspec­tion con­di­tions. And I did not like it.

But to write to RECO to com­plain is a bit much. I am tired of all of these com­plain­ing sto­ries in the papers. From the FML blog to this, all every­one wants is a sob story. Real estate agents are demons, sell­ers are hor­ri­ble, prices are too high, every­one is out to get every­one and it is all one big con­spir­acy that is going to crash tomor­row. Or the next day.

Noth­ing could be fur­ther from the truth. Real estate agents are not con­spir­ing to drive up prices – there are approx­i­mately 100,000 sales in the GTA every year. So there are 100,000 buy­ers and 100,000 sell­ers – at a min­i­mum. Add to that 200,000 real­tors and you have at least 400,000 dif­fer­ent peo­ple set­ting the tone of the real estate mar­ket every year. They are not all in it to screw you out of your dream house. Some, maybe… but not all of them. Kidding!

It is not inter­est rates, as they have been low for some time now. And they were higher years back when all of this crazi­ness started. Rates were close to 6% in 2006 when bid­ding wars really took off. They were not much lower in 2007 when all sorts of records were bro­ken. They were over 5% in 2008–2009 when the mar­ket dropped slightly and then rock­eted back to life. They were higher in 2010 and last year. So, it is not inter­est rates. I bet we see rates rise to around 4% for 5-years – which is pretty much a 25% increase – by the end of the year. And it will make not a difference.

The prob­lem is sup­ply and demand. Right now, demand WAY out­strips sup­ply. There are 10 buy­ers for every seller. I do not know why peo­ple are not sell­ing, but it is just the way it is. Go back through my posts over the years and you can see that I have been say­ing this for a long time. And the prob­lem is, every house that sells leaves 9 bid­ders that did not get it. So the next one has 11 bid­ders – and 10 who did not get the house. Then 11 do not get it, then 12… and so on… The prob­lem is that we keep adding 2 buy­ers for every seller. So every day sup­ply goes down while demand goes up. Until list­ings go up 10-fold, this is going to be the problem.

It is just sore los­ing to start name call­ing and com­plain­ing if you do not win a bid­ding war. Yes, some houses are under-priced, but a good real estate agent can see that a mile away. I know I can – and I advise my clients appro­pri­ately. They send me links from Real​tor​.ca say­ing how good a deal a house is, why is it so low? I explain they are look­ing for bids. Some do not mind, their bud­get is higher and they are pre­pared to get into the fray. Oth­ers do not want to, so we avoid those homes.

That is where you need a trusted real­tor to help you. Their advice is price­less in these sit­u­a­tions. I have been in 100 bid­ding wars – or more – and I have a pretty good idea of how they will play out. Lis­ten to me, work with me, we can get the house. If you do not want to play that game, stay away from houses with bids.

Part of the prob­lem with houses get­ting 14 bids is that 10 of them have no inten­tion of bid­ding to win. If a house is priced at $500,000 but mar­ket value is around $600,000 and there are 14 bids, then offer­ing $550,000 with tons of con­di­tions will not get the house. Of those 14 bids, some will be under ask­ing (because they do not want to believe that the house will sell for over ask­ing), a few more will be right at ask­ing, oth­ers will be a bit over ask­ing – and then there are 3–5 that are seri­ous and are way over. The prob­lem is, take out the 10 bids that are not seri­ous and the house sells for $540,000 and not $620,000.

Bids are blind, no one knows what any­one else is bid­ding. Thus, all we have to go on is the num­ber of bids. Gen­er­ally, when there are 8+ bids on a house priced over $500,000, you can expect to see around $10,000 over ask­ing per bid. So the 10 bids that are not seri­ous just add $100,000 to the ask­ing price. And now, the next house is listed at $520,000 and sells for $640,000. And so on. Putting in low bids “just to see what hap­pens” always back­fires. It pushes up the price of the house, and thus the price of the local area.

And you can­not fault the seller, can you? Do you spend time com­plain­ing about sell­ers on eBay who hold out for the high­est price to sell to? Or Kijiji, where most ads specif­i­cally ask peo­ple NOT to low-ball them. If you own some­thing, it is yours. You can sell it for how­ever much you want, to who­ever you want. Yes, all the power is in the hands of the sell­ers right now, it sucks if you are buy­ing. But com­plain­ing is just juve­nile. Learn from your mis­takes, know more the next time. Go into bat­tle ready to win and do your best. If you do not win the first time, get back on your horse and go again.

There are few things in life we can con­trol, do what you can with what you have. And be as grate­ful a win­ner as you are a gra­cious loser. One day you will be in the other seat, sell­ing your home. I hope that peo­ple bid­ding on your house are as nice to you in return.

But for now, until we get more list­ings, sup­ply will be tight and sell­ers will be in con­trol. Take a breath and be strate­gic, we will get through this! Together!

All the best and good luck with your home buy­ing or selling.

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Con­tact Lau­rin Jef­frey for more infor­ma­tion – 416−388−1960

Lau­rin Jef­frey is a Toronto Real­tor with Cen­tury 21 Regal Realty. He did not
write these arti­cles, he just repro­duces them here for peo­ple who are
inter­ested in Toronto real estate. He does not work for any builders.

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