Bidding wars refer to multiple offers on one home. Bidding wars are more common in markets where their demand outstrips supply for homes on the market. This type of market is often referred to as a “sellers market,” as the increased competition between buyers usually nets sellers a high selling price.
When a seller is expecting multiple offers, they’ll usually include a specific date and time when buyers can submit offers. This creates the circumstances that lead to pre-emptive “bully” offers and bidding wars, explained later in this article.
Using the current Toronto market as an example, the typical pattern for bidding wars begins with a listing going live on a weekday. On the first weekend, the sellers will likely host one or two open houses and generate as much buzz and interest as possible. One week after listing, buyers submit their offers and the sellers review all offers at the same time. Once a decision has been made, the sellers contact all bidders to reveal their selection.
You and your agent should be aware of bidding war details, so here’s a glossary of the most common terms and situations.
In less competitive markets, a buyer will typically present an offer without a deposit, only submitting one upon acceptance of the offer. During a bidding war, buyers will want to stand out and show they’re serious about buying this home, and de-risk their offer for the seller, so they’ll present a herewith deposit with their offer. The larger their deposit, the more likely they are to be a contender to win the sale.
For more information, read our article on deposits.
In a traditional offer negotiation, a buyer typically includes various conditions that the seller must adhere to before closing, including fixing damages, passing a home inspection, and confirming the buyers are able to sell their existing home. In a competitive situation, strong offers will have few—if any—conditions. The more stipulations you put on the seller, the more likely they will refuse your offer in favour of a less risky one.
Home inspections, for example, should be done prior to submitting an offer, if possible. If the buyer can do their due diligence ahead of time, they’re in a better situation to compete in a bidding war.
Although it’s your agent’s job to prepare you for bidding wars, here are a few things to keep in mind during the process.
The listing price may not be the right indicator of a home’s actual value; it is a marketing number determined by the seller and their agent. Your agent can compare similar sales to determine what will be the likely eventual sales price. Details for consideration include age of the home, square footage and room count, and other desirability factors. From the price range your agent is giving you, you can both determine what the appropriate offer is.
In a seller’s market, you want to see homes on the day they are listed. This way you can either make a pre-emptive offer, or it gives you time to do your due diligence should you want to put in an offer the following week. Have your home inspection completed, your mortgage approved, and your deposit ready when you give your offer a week later.
A pre-emptive “bully” offer is when you present an offer before the seller has officially stated they will consider offers. You may be able to beat the rush if you present a strong enough offer that the seller decides to forego their original marketing timeframe. Bully offers usually have short irrevocable period—2 to 4 hours later, for example—to entice sellers to take their offer before others are submitted. Ask your agent to inquire about bully offers if you’re really eager and ready to make a firm offer.
Your agent should have a play-by-play schedule in their mind for offer night, since that’s the most important time in the buying process. They should consider your offer price, fair market value range, and conditions and preferred closing date as leverage. They should also have a rough idea of how high you’re willing to go, and how many rounds you’re willing to endure—meaning how many times you’re willing to negotiate the price back-and-forth with the seller.