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How To Win a Real Estate Bidding War in Canada

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It is undeniable that housing costs have boomed tremendously worldwide. Canada is no exception, and on top of rising housing costs, real estate bidding wars can make purchasing your dream home even more difficult. Knowing the real estate bidding laws in Canada can help home buyers navigate through the home buying process.

Real estate bidding war rules in Canada have tried to prevent biased bidding wars. Under these rules, realtors are required to protect the clients’ interests and work to their advantage. With careful strategic decisions, you can avoid engaging in an intense bidding war or else win the best deal for your purchase without impacting your wallet adversely. Let’s dig in further to know more about it!

What is a Real Estate Bidding War?

A bidding war arises when two or more property buyers compete for a single house. As a buyer, you try to acquire the right to buy a bidding war house by offering more money than the competitors. In other words, you attempt to outbid your competitors to win the purchase.

Usually, the listing agent plays a vital role in bringing up this situation and gets involved in verbal negotiations with several buyers’ realtors. The seller’s agent then persuades each buyer to raise his offer and outbid the others, when initial bids are put forward.

Some factors responsible for creating bidding-war situations include:

  • shortage of housing supply,
  • multiple prospective buyers,
  • an attractive location,
  • and numerous real estate investors willing to pay cash.

Do not confuse bidding war real estate with multiple offers real estate as the latter is when a seller gets multiple written offers for a property from potential buyers. Here, no oral negotiations occur between the listing agent and the buyers, and no competition exists. Unlike bidding wars, the buyer with the highest offer wins the sale. This process is fair and healthy – every buyer gets an equal chance and the seller reviews each offer before making the final choice.

Buyers suffer a lot in real estate bidding wars. Either, they fail to buy a house within their budget or end up overpaying for a house with a belief that it is a fair value.

Currently, no law in any Canadian province forbids actions leading to a bidding war. However, certain bidding rules and guidelines and a few ethical concerns should be kept in mind.

Real Estate Bidding Rules in Canada

All the realtors in Canada are under obligation to follow the code of ethics of The Canadian Real Estate Association (CREA). The code under CREA requires realtors to always protect and work in the best interest of their party. This implies getting the maximum sale price for sellers if working as a seller’s agent, and ensuring that buyer does not overpay if working as a buyer’s agent.

The CREA also compels agents to maintain transparency in their dealings and avoid concealing any instances where an agent represents multiple clients on a single sale. Moreover, CREA prohibits agents from conveying private information to any buyer that may give a competitive advantage during the transaction.

It is important to consider that the laws and regulations may not be the same for every Canadian province and may vary from region to region. For instance; realtors have a legal obligation to inform about competing offers to buyers. There are few areas where realtors can disclose how many competing bids exist, whereas others are also permitted to disclose the actual values of bids after the seller’s approval.

As a seller, if you want to incite competition for your house, the best tactic is to conduct extensive research on real estate bidding war rules Canada and go through your province’s real estate association laws.

For example, suppose you are residing in Ontario. Then, as per Ontario’s real estate rules, a realtor is legally obliged to claim to have offers only if he possesses officially signed written offers. Also, disclosing the number of signed written offers is compulsory if a buyer asks for it.

7 Tips for Winning a Real Estate Bidding War

You can view the term “winning” in a real estate bidding war from two different aspects. You may consider yourself a “winner” if you get the property, even if you have paid a bit above its market value. However, you can be the “real winner” if you manage to buy a competitive property at a fair price, which is not over-inflated.

The best tactic to become a real winner in a real estate bidding war is to think strategically and make moves that exactly fulfill the seller’s needs. Wondering how? Let’s go through a few tips to edge out the competition with multiple bidders and buy your dream home at a reasonable price:

1. Make an All-Cash offer

With multiple offers on a house, your all-cash payment offer can easily knock out many bidders from the competition. Of course, there are exceptions where parties are offering higher bids than yours. But, cash payment offers attract most sellers and make them realize that you are a serious buyer. It shows that you are ready to buy the property as early as possible.

Hurdles like mortgage preapproval problems, third-party denials, invalid questions, doubts, and suspicions, all vanish away with just one clause: “I will pay in cash”. Certainly, not every buyer has the ability to make an all-cash bid, so one can go for an alternative strategy.

2. Get Preapproval for a Mortgage

Where all-cash payment is impossible, you should get preapproved for a loan as it is essential to survive and stay ahead in competitive bidding scenarios. A preapproval letter from a lender shows that you qualify for a mortgage of a specific amount. It strengthens your offer and aids in winning the seller’s confidence.

Even all-cash offers hold-up until the inspection period ends, therefore a written promise for a quick loan is equally valuable as a cash bid in the eyes of seller. If you house shop without a preapproval, your odds of losing the bidding war increase.

3. Check Your Affordability

Knowing your financial limit is the key to preparing for a bidding war. You can apply two vital tactics to grab a financial edge over competing bids.

  • Using an escalation clause: An escalation clause enables you to raise your offer price to a certain price cap so that you do not get outbid by another buyer. This clause appeals to the seller as it shows your strong inclination to buy the property and close the deal.
  • Offering more earnest money:Earnest money is a type of security deposit paid by the buyer when a seller accepts his purchase offer. Earnest money assures sellers about the buyer’s intent to follow through to the deal closure. Putting down more than the usual amount as earnest money shows your willingness to risk a greater amount in case any financial crisis occurs.

4. Waive Contingencies

Including contingencies in your purchase contract allows you to save your earnest money. You can withdraw from the deal without any penalty if you fear failure to get through the transaction due to unexpected crises or unwanted situations. These may include detecting major issues during home inspection or the inability to acquire a home loan even after preapproval.

In intense bidding war situations, waiving all or a few contingencies can give you a competitive advantage over other buyers. The sellers give preference to offers with fewer roadblocks. Thus, this step can push your bid to the top in the seller’s favorable bids list.

However, removing these contingencies is like taking significant risks on your part as you may end up buying home with serious flaws or lose huge amount as earnest money.

5. Include an Appraisal Gap Coverage

Offering an appraisal gap guarantee is the next best step after all-cash bid to win the bidding war. With this clause in your purchase offer, if the property’s appraised value is less than the negotiated price or bid amount, you agree to make up the difference between the negotiated price and appraised value.

In this way, the seller’s risk of the buyer stepping back from the deal or not receiving the full bid amount is eliminated. Consequently, the seller gains peace of mind and your chances of winning the property increase.

6. Write a Personal Letter

A personal note to the seller is another strategy to keep you ahead of competitors in the bidding war. In this letter, you can emphasize things you have in common with the seller; like hobbies, interests, family life etc. You can also explain why the property can be ideal home for your family.

You can go for different approaches but your primary aim should be to connect with the seller emotionally and pull the seller’s heartstrings so that he gets convinced that you are the right person to sell the house.

7. Cover Seller Costs

The last tactic to get additional eyes on your offer is to cover closing costs like title fees and commissions. When sellers do not have to pay these expenses out of the sale proceeds, the offer attracts them to the extent that it can even beat the competing bids.

Other simple ways to make a seller consider your offer out of many applications include; allowing a seller to make joint decisions on inspections, waving the right to get repairs, giving the seller a closing date as per his convenience, and permitting the seller to enjoy rent-free stay in the house for a specified time even after closing date, and so on.

Final Say

As a buyer, becoming part of a bidding war is challenging, especially in Canada’s competitive real estate market. There are times when you face emotional distress and thoughts take over your mind to make you do everything to be the winning party. There is no guarantee that you would win the bidding war on your dream house. However, if you prepare yourself ahead by getting armed with knowledge of real estate bidding war rules in Canada and, employ the correct strategies, you can put your best foot forward.

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