Multiple offers (often referred to as “bidding wars”) are a regular feature in the Toronto real estate market, a situation that can be a source of apprehension and doubt for many Buyers. To reduce that apprehension, we’ve compiled this how-to guide that aims to take the mystery out of the bidding war process, as well as to arm you with knowledge that will increase your chances of coming through bidding wars with positive results.
Bidding wars don’t actually involve bids like an auction, and they aren’t actually wars. The term ‘bidding war’ is used to describe a situation where when more than one Buyer makes an offer on a property at the same time. Understanding the basics about multiple offer situations and having the knowledge to play the game will go a long way in making you feel more comfortable and help you get what you want.
Who’s in Control
Multiple offers generally present themselves in a Seller’s market, when Sellers are in control. In the words of my old economics Prof – a Seller’s market is when there are too many Buyers chasing too few properties.
When to Expect a Bidding War
In the current Toronto market, anything is possible. Some hot properties in hot neighbourhoods will generate multiple offers after being on the market only a day or two–and in some cases, in mere hours. For the most part though, when a Seller is trying to generate multiple offers, they will set a specific date to review offers (known as “withholding offers”) – usually 7 days from the date they listed their house on the market.
The Seller’s Goal
The Seller’s wants to expose their property to as many potential buyers as possible, then force anyone interested enough to make an offer to show up at the same time. If the strategy works, the result is multiple offers, and often a selling price above what they might have otherwise have received. It’s important to note that not all properties that have an offer date get multiple offers – but it’s best to be prepared just in case.
How It Works
Bidding wars in Ontario are blind – meaning you’ll never know how much any other offer is. Your offer may be $1 below the highest offer, or $50,000 above the next-highest bid. Only the Sellers know what all the offers are – and only the winning sales price will be made public.
As a potential Buyer, you are entitled to know how many offers you are competing with. When a Buyer signs an offer, their Realtor ‘registers’ the offer with the Listing Brokerage. The number of registered offers must be shared with other registered Buyers – but not the content of the offers.
Most multiple offer situations involve Realtors presenting their clients’ offer to the Sellers and the Listing Realtor in person. There is usually a time set – for example, 7 PM on Monday, and offers are presented in the order in which they were registered. Potential Buyers and Realtors wait for the process to run its course, sometimes over coffee, often over beer.
Generally, Sellers will select the best of all the first offers that have been presented to them. ‘Best offer’ of course is a subjective decision, based on the Seller’s specific situation, but which is usually a combination of the most attractive closing date, price and conditions. In most bidding wars, Sellers do not negotiate with Buyers, so it’s important that your first offer is your best offer. In some situations though, negotiations are necessary. Sellers are only allowed to negotiate with one offer at a time – meaning they can’t sign-back 2 or 3 offers at the same time, at higher prices, in the hopes that someone accepts it. If two or more offers are very close, potential Buyers may be asked to both improve their offers – though again, this will be a blind process and one that your Realtor will need to carefully walk you through.
At some point, the Seller will accept an offer, and all other potential Buyers will be notified via their Realtors. Click here for information on How to Win a Bidding War.