In a hot real estate market, bidding wars are common. They usually arise in 2 different ways:
- The manufactured or intentional bidding war, when you set a price to attract attention (usually artificially low) and withhold looking at offers for a period (usually 6 or 7 days; for example, you might list a home on September 7th and decide to look at offers on September 15th at 7 pm). Withholding offers is a good strategy to ensure potential Buyers have an opportunity to see the home.
- The natural bidding war, when more than one Buyer makes an offer at the same time. The Toronto market is smart, and when good properties are in short supply, and the Buyers are plentiful, it’s not uncommon for natural bidding wars to occur (we see this daily in the condo market right now).
When an offer is signed by the Buyer, their agent will officially ‘register’ it with your agent’s office. Details of the offer won’t be revealed – simply the existence of an offer. Once the first offer is registered, your agent will likely contact anyone who has shown the property to inform them of the offer and when it will be presented. As new offers are signed, they will also be registered with your agent’s brokerage.
In an ideal world, multiple Buyers make offers at the same time and those offers:
- Won’t have conditions
- Will be significantly above asking
- Will meet your closing date
- Will be accompanied by a sizeable deposit (at least 5% of the purchase price) via certified deposit cheque or money order
- Will be accompanied by a certified deposit cheque
The offers will be presented to you one a time, and you can choose to:
- Accept the highest and best offer. Congrats! You’ve sold your home.
- Ask everyone to improve their offers (note that you/your agent can’t reveal the content of any offer, so the Buyers will be bidding blindly and quite possibly, against themselves).
- Ask the top few offers to improve their offers.
- Choose to negotiate with one of the Buyers.
Note: when you ask a Buyer to improve their offer, you are essentially rejecting their offer, so they may choose to walk away. And yes, it’s entirely possible that you ask everyone to improve their offers (thereby declining them all) and everyone decides to go home, so play this game carefully.
Of course, bidding wars don’t always go as planned. One of 3 things can happen:
- Multiple offers are registered and submitted (yay, bidding war!)
- One offer is submitted (in which case you can choose to accept, negotiate or walk away – it’ll almost always be at or below the asking price)
- No offers are submitted (in which case, you can choose to stay on the market at the current price or revise your price (up or down) to reflect what you really want. If you don’t get the offer you want on Offer Night, it’s important to have an honest conversation about what happened. Are your expectations in line with the current market? How many showings have you had? Did your competition sell? Did anything extraordinary happen? (e.g.,. a weather event or the Blue Jays playing Game 7 in the World Series).
My most important advice to you: listen to the market and don’t make rash decisions no matter how emotional you’re feeling. A top agent can go a long way in educating and counselling you on bidding war night. Choose your agent wisely.
Stay tuned for Part 3 of the series: the Bully Offer. If you missed Part 1, click here to read about the “Normal” Offer Negotiation.