Homebuying

Five things I learned from losing a bidding war

By: John Shmuel on August 14, 2017

I noticed the “For Sale” sign on the front lawn when I was coming home from work.

For the past year, my partner and I have been renting a first-floor unit in a quiet low-rise in Toronto’s Corktown neighbourhood. While we weren’t in a rush to buy, we have been saving our down payment and were ready to pounce if the right opportunity came up. We loved our current building and had talked about buying something there in recent months.

It felt like the right opportunity.

I immediately called the brokerage selling the property and booked a viewing. The unit being sold was a two-storey, two-bedroom space with lots of light and a great view on the third floor. Sure, the tenant was a smoker and we had a lot of renovating to do, but it was a project that made us excited.

My partner and I put in our offer that night.

Originally, the seller was supposed to entertain bids for an entire week, but the game plan quickly changed. The morning after our bid, I was told that a decision would be made in the next 24 hours, and that our offer was one of three bids being considered.

What transpired next was a stressful 24 hours where I got little sleep and where I learned a lot about how ruthless bidding wars can be.

Make sure you come with a pre-approval

This is a big one. My partner and I thought ourselves prepared because we’d been saving our down payments for years. We figured if the right property came along, we’d have plenty of time to secure financing.

But barely 48 hours passed between the condo going on sale and the final offer being accepted. We were able to secure a pre-approval in time for the final offer, but the stress was intense. A pre-approval shows a buyer that you have been approved by a bank to get a mortgage at an amount that will cover your purchase. It removes uncertainty from the process. Don’t let this one slide.

If it comes down to you and someone else, and they have a pre-approval and you don’t, it’s going to the side that’s pre-approved.

More money on hand makes an offer more attractive

“What’s the biggest money order you can get?” my real estate agent asked as we submitted our bid.

When the seller’s real estate agent is presented multiple offers, you want yours to stand out. Often times, that’s the highest bid.

But in our case, all offers were within $10,000 of each other. Being able to present a lot of money upfront to a seller, especially in a market like Toronto, is important. Recently, with falling housing prices in the city, some buyers have tried to walk away from their purchasing agreements. This is spooking sellers — the last thing they want is to be caught up in a lengthy legal battle.

Offering up a large deposit as part of your bid provides security. So make sure you scrape together as much money as possible to present with your offer.

Sentimental letters usually don’t work

My partner and I tried to appeal to the seller’s heart. We lived in the same building and while we didn’t have a relationship with him, we wrote a letter and attached a photo of the two of us.

We spoke about our love of the community, our involvement in it and our desire to put down roots.

Nada.

While we were told it was a nice letter, it wasn’t enough to make our bid the winner — he opted to take the offer that was $10,000 more than ours.

Consider the conditions on your offer carefully

When you put in an offer, you can legally denote that it comes with conditions — if the conditions are not fulfilled, the offer can be withdrawn without penalty.

We had two conditions on our offer, based on research and first-hand experience in the building. First, we wanted to see the condo’s status certificate — a fairly reasonable request. The certificate would reveal the health of the condo board’s finances. If the board didn’t have enough cash stored on hand, it would automatically raise questions about whether the board can finance projects such as renovations or maintenance work.

We also asked for a home inspection. While this is not that common for condos (definitely a requirement for single-detached homes, though), we wanted it because we learned the building had issues with leaking windows and that there was a one-time assessment coming up. (That’s when each condo owner is billed for work that needs to be done on the building.)

Our real estate agent told us removing the building inspection condition would make our bid more competitive. The other two bids didn’t include them.

But we wanted it there for peace of mind. The pressure was high to remove it, but in the end, we’re glad we stuck to our resolution.

Finally, don’t get carried away

Being in a bidding war is stressful and the desire to win a home you love is high. Many people get sucked into bidding beyond their budget, and spend years suffering the consequences.

When we found out our offer was not far from the leading bid, we made a choice not to go higher. But the pressure was there and we spent an hour debating about whether we should. My partner and I had set a budget that we refused to go over, but when it came down to the wire, we got very close to blowing that budget.

Luckily for us, in the end, reason won out. We didn’t want to be house poor. We didn’t want to sacrifice our quality of life and doing the things we love — travelling, enjoying our favourite restaurants, seeing our friends — just so we could service a mortgage.

But we came close to falling into the trap. It’s hard to keep a level-head in these scenarios. Before you start house hunting, sit down and come up with your red line — what you’re willing to and can pay. And do everything you can not to cross it.

You’ll thank yourself in the end.

 

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