This past summer, Liz Bertorelli started feeling cramped in her Queen West condo and in all honesty — wanted a backyard for her beloved French Bulldog. She became a regular at real estate viewings in Toronto and got familiar with something many homeowners in competitive markets have come to dread: the bidding war.
After one too many viewings (and lost bids), Bertorelli and her partner went to see a semi-detached home in the east end. It was beautiful. Others would certainly think so, too.
“The most stressful part of the process was the bidding war,” she says. “We saw the house and thought — it’s beautiful, there goes our chance.” But instead of throwing in the towel, they got organized and gathered an A-team of industry professionals to help. They were so prepared, Bertorelli actually made the winning offer while her partner was on a plane. At the end of August, she shared a picture on Instagram holding blueprints with the caption, “It’s official, we got the blueprints and are mapping out exactly how many dogs we can fit into our new home. Still doesn’t feel real.”
Livabl spoke to Toronto-based realtor Roger Travassos and mortgage advisor Matt Yakabuski for their advice on surviving a bidding war — and knowing when to walk away.
The danger of going in blind
In Ontario, when a seller receives multiple bids, the broker can disclose the number of competing offers but not the competing price. In hot housing markets, this method means that buyers can end up blindly offering more than they initially planned or far more than the others to beat the competition.
As of January 31st, the Ontario government announced that they are reviewing this rule to give homebuyers increased access to information during a bidding war. This change could benefit both the buyer (who can better make an informed decision) and the seller (who can rest easy knowing they aren’t missing out on bids by deterred homebuyers).
In Australia, bidding wars couldn’t be more transparent — they literally take place on the front porch, with homebuyer hopefuls present and accounted for. And you don’t need an agent to access critical information like home inspection results, sales histories and the statistics on other sales in the neighbourhood. With the exception of Nova Scotia and New Brunswick, Canadians rely on realtors to get the dirt necessary to close on a house.
Across the border in Buffalo, you don’t even have to go online to get this information. Every home sale gets real estate in the local paper, which advertises the past and present homeowners and the sale price.
Teamwork makes the dream work
“Make sure you have a team in place before you start looking,” explains Travassos. This includes a mortgage advisor, a lawyer, and a realtor who can all work together to bring you to the finish line.
“My real estate agent and broker were extremely helpful in the process. They basically held my hand through everything,” says Bertorelli.
“When my clients find a property they love, it doesn’t necessarily happen during business hours,” Travassos says. “Getting ahold of your mortgage advisor at the bank is not always easy. When a client expresses interest, I get on the phone with the mortgage agent I work with directly to crunch the numbers on a property.”
At a bank, it’s shift work where appointments can’t always happen at your convenience, in a pinch or in the heat of a bidding war. Yakabuski worked at a major bank for eight years and has spent just under a decade on the other side as a private mortgage broker. “We’re pretty much self-employed,” he says. “I come to the office during regular hours but I’m available if need-be outside those hours.”
Or there was the time Travassos wasn’t certain the kitchen had been built with a permit. “My client wanted to put in an offer, so I had a conversation with a lawyer,” he says. “You have to have your whole team working for you. So when you go into it, you’re already in a great position.”
Do the math and respect your budget
Getting pre-approved for a mortgage is an important element in the process of buying a home. If you’re entering a bidding war, it’s essential.
This means a lender has checked your credit and verified your documentation to approve a specific loan amount for a particular period — arming you with the knowledge of how high you can take your offer. “Your income documents, downpayment confirmation and credit have to be thoroughly reviewed and up-to-date,” explains Yakabuski. “This provides you with a safety net to know high you can go with your offer.”
Just because you can hit the ceiling of your lender’s approval, doesn’t mean you should. This means going through your budget long before you put in an offer. “Instead of people asking me what they can afford, I ask them what they’re comfortable spending on a monthly basis on mortgage, property tax, heat, hydro and more,” says Yakabuski. “This varies from person to person. Some people are conservative, some people are less risk-averse and want to know what their maximum value is.”
To get a true sense of affordability, shift your focus away from the listing price of the property and more on the monthly carrying costs. While it’s heartbreaking to lose a bid on a difference of $500, staying within budget means you can feel good about the offer you’re putting forward — and you won’t end up house poor.
Unconditional love offer?
Sellers love firm offers during a bidding war — meaning little or no financing or home inspection conditions. Put yourself in their shoes — if you back out because of financing trouble or can’t stomach the leaky roof discovered by the home inspector — they have to start over. In a competitive market, this just won’t do.
“Professionally and ethically, I tell people not to go into things without a financing condition and inspection to protect them. But in certain circumstances where you’re in a market where you don’t necessarily have that luxury, it’s important to do your due diligence,” says Yakabuski.
Start by getting your pre-approved financing in place, then move on to home inspections. Often sellers hoping for multiple offers will have a pre-listing inspection done. It’s up to you if you’re comfortable taking their word for it. If the thought of unexpected home repairs keep you up at night, you can do your own pre-listing inspection before you make an offer. Sure, it’s $500 for a house you may never live in, but it can save you a lot of heartache down the line.
Forget the listing price. What is the home worth to you?
Paying more than you think a home is worth might help you win a bidding war, but you won’t come out on top when it’s all said and done. Remember, the home is an investment and if you overshoot the value of the house, it’ll take much longer to see a return. On the other hand, you’ll also play a losing hand if you get too attached to the listing price — vowing to not pay a cent over asking.
“I’ll tell my clients the stats,” says Travassos. “Sometimes they don’t care and it takes a few lost offers for them to see what they’re up against in the market.”
Before getting swept up in a bidding war, it’s important to do your homework to determine what other homes in the neighbourhood have gone for. Then look beyond the property. Are there local schools and daycares in proximity? Public transportation routes and easy access to parks? How far is the nearest grocery store? Are future housing and city developments coming in? Determine how much all of this is worth to you. The truth is, the value of the home is whatever you’re willing to spend on it — but doing the legwork will help you come up with a realistic offer you can feel good about.
Put (some) of your money on the table
Bringing a certified cheque deposit on offer day (usually 5 percent of the price of the property) is yet another way to stand out from the crowd.
Bertorelli showed up to her future home with a deposit in hand on offer day. “Buying a home the second time around was a lot easier because I had that mental checklist to run through — make sure you have the money, don’t go over your budget,” she says.
Making your cash liquid is a game of timing. It’s not fun to miss out on an opportunity while you’re waiting for your RRSP to hit the bank.
Get personal
Money talks, and so does a high bid, a certified cheque with your deposit, pre-approval for financing and taking care of a home inspection. But a personal touch — like a hand-written letter or thoughtful email — could help you seal the deal over another bidder. Remember, just like you, sellers are experiencing their own roller coaster of emotions and knowing their home is going to someone who will truly value it could be more meaningful to them than you will ever know.
Know when to call it quits
Maybe the reality is that you could barely afford the listing price — let alone a bidding war. Or you put your strongest offer forward and still came in second.
Bertorelli missed out on a laneway house in the west end before setting her sights on the east end, which was an entirely new part of the city that she had never considered living in. She’s now thrilled to call it home — and her French Bulldog couldn’t be happier with the backyard.
If you feel you’ve missed out on the dream home — again — hold tight. Travassos never hears his clients wish they’d gotten the other property instead, when they do finally close. “There’s always another house, it’s okay to move on,” says Travassos.
