If you’ve been trying to purchase Real estate in Peterborough and The Kawartha’s over the past year, no doubt you’re all too familiar with bidding wars. Seems the imbalance between supply (limited listings) and demand (lots of potential buyers) has created a really difficult situation for many potential home buyers. It’s especially challenging in certain segments of the market including entry/mid-level homes and the cottage market. Are there ways to better position yourself to be able to compete against other offers? I believe there are – and it starts with some basic understanding and then establishing a strategy.
Types of Bidding Wars
The limited supply of homes and cottages for sale has resulted in a lot of focus on new property listings. Many buyers and their Realtors are combing through MLS daily with hopes of finding the perfect property. Realtors know that this is a ‘sellers’ market, and so they often utilize various listing techniques to encourage bid competition. These techniques can create situations where list prices are no longer relevant – in fact, agents may very well intentionally list a home’s price at lower than market pricing . While creating lots of demand, the process can also be extremely frustrating for buyers. Finding out that a cottage that is listed for $449,900 sells for over $550,000 is discouraging.
In order to minimize frustration, it’s best to understand the process. If you’re new to the process, the following are a few of the techniques Realtors use:
1. Holding Offers
A new listing hits the market, but the selling agent states a specific date and time that offers will be presented to the sellers. This allows many buyers to view the property and removes the advantage of viewing the home or cottage immediately. All interested parties are encouraged to submit their offer by the deadline date and go ‘head to head’ against other buyers. Agents who have registered to show the property are kept informed of any registered offers the property has received. This technique is effective at enabling out-of-town buyers to schedule their showing before the holdback date, without fear of being too late with one exception. A preemptive offer or ‘bully offer’ – an offer made before the hold back date with hopes the seller will view it and accept it ahead of the competition. I’ve seen it happen locally and it really upsets buyers who felt they had time to view the property. Suddenly, the property is Sold. While upsetting, sellers are free to do as they choose and it’s their right to view and/or accept any offer. To prevent this scenario, agents will sometimes state in the listing that the sellers will NOT accept any such offers, encouraging fair competition and bidding wars.
The take away – Be sure to ask your agent about preemptive offers and if there is any information stated in the listing regarding offer hold backs?
2. Stated Irrevocable Periods for Offers
When creating an Offer to Purchase, a buyer must state a time period for which they are legally bound by the terms of the offer. This is known as the “Irrevocable Period” and it enables the sellers to review the offer and accept it before the period has expired. In essence, the buyers are bound by the offer as they await the sellers decision. Of course, exceptions exist, but this is the general process for negotiating the purchase.
The strategy of this process is obvious – in a hot market, a buyer may attempt to view a new listing and make a quick offer with a very short irrevocable period (hours) to create a sense of urgency for the sellers to deal with the offer. Savvy listing agents can circumvent this process by stating a required irrevocable period for all offers (example 48 hours), providing ample time for other interested parties to submit competing bids. While this is currently being used as a ‘hot market’ listing strategy, it’s also helpful when the sellers may not be in town or travelling, etc.. Providing sellers a few days to review offers make good sense as a listing realtor, but it does tie up buyers as well. There is lot’s of theory surrounding setting irrevocable periods – feel free to reach out if you’d like to discuss further.
3. Conditional Offers
It’s a really difficult topic – the dynamics of the real estate market in Peterborough has put first time home owners in a precarious position. When faced with a bidding war and the potential for multiple offers, reducing the conditions with your offer can play a major impact on how your offer is received.
As an example, a professional Home Inspection enables prospective buyers to better understand the home they purchasing and have confidence in understanding their ownership budget. Most realtors will suggest that buyers, especially first timers, consider a home inspection. However, when faced with a multiple bid scenario, conditions to home inspection may adversely position your offer against the competition. So in order to compete, buyers often choose to forgo this step and take their chances. It’s not recommended and not in their best interests, but unfortunately, often the case. It can also create a situation that limits the potential market for buyers that can bid on a home as older homes can have many costly problems hidden behind the walls. Some buyers will choose to not bid for fear of unexpected repairs <note: as part of my seller listing services, I include a home inspection by a professional to enable buyers to compete with confidence>. A Pre-inspection of a home can help reduce the requirement for this condition. As a side note, I’ve also seen conditions to inspection stated in terms of hours to complete versus days as the buyers have an inspector ready and ‘on call’. This assures a seller that they will not be locked out of the market for long due to lengthy condition to inspection periods.
A similar discussion can be had regarding financing and the challenges bank approval timing can create when bidding on competitive properties. While banks can state that they require up to 10 days for approval, few sellers will accept this condition over a cash offer unless it’s significantly higher. It’s important to work closely with your bank and address timing to better understand your options.
While there are many factors that can impact real estate purchasing success when entering a bidding war, the key is in understanding the process, evaluating your options and developing a strategy. Like any good strategy, it’s unique to each set of circumstances and should be evaluated and aligned with market information.
As a Realtor, I love working with prospective buyers to establish effective real estate buying strategies. It’s a lot of work to be successful in a sellers market.
Working with sellers, there are tools and techniques we can use to ensure you get maximum market exposure and strong offers. This also requires careful analysis of several factors and aligning the best solution for your unique situation.
If you’re considering buying or selling a home or cottage in Peterborough and the Kawartha’s, please feel free to reach out and chat. I can be reached on by personal cell phone at 705.933.9191. All calls are held in strict confidence.
And of course, this post is not intended to represent legal or financial advice. It represents my personal opinions only. Always consult a professional for legal or financial advice. This post is not intended to solicit those currently working with a realtor BUT is intended to connect with those that are not currently under contract.