Bidding wars for Real Estate have become an almost unavoidable reality in Victoria over the past few years, much to the chagrin of buyers and the delight sellers in what has become known as the strongest Real Estate market in the history of Victoria.
It all started when Vancouver buyers brought their Asian currency export dollars into Victoria along with market dynamics that have been the norm in Vancouver for well over a decade. Until 2014 a spread between the asking price of a home and a final sale price of more than $25,000 above was almost unheard of while spreads exceeding $200,000 were already the norm in Vancouver.
Since 2015 bidding wars have almost become the norm in Victoria with the number of bidding wars with sale prices exceeding the asking price by more than $100,000 rising astronomically. Even spreads of $200,000, $300,000 or even $400,000 have since been registered in Victoria.
Your first line of offense when entering this stressful arena is your buyer’s agent. You want to select someone not too timid who is well versed in the complex dynamics of bidding war politics, and with plenty of industry experience and a track record of winning multiple offer competitions. Ask for a bidding war transaction resume and a description of the tactics employed to win them.
Your buyer’s agent will research and analyze recent sales of comparable properties to determine what your property of interest is likely to sell for. He will take current and most recent market activity into account. In a rising market your home may sell for 5% more than an identical property sold for a month ago. An experience and competent buyer’s agent will have a cutting-edge awareness of current market condition and provide you with accurate valuation advise.
The next step will be to gauge the level of interest by the market in the competition property. Your agent will find out how many times a day the property has been shown by other Realtors or independent clients, if anyone has ordered a building inspection report, or in the case of strata properties, if anyone has requested to receive copies of the strata documentation package that will including things like things like strata bylaws, rules, financial statement, depreciation reports, minutes of meetings, etc.
Building inspection orders and strata information requests are an indication of very serious interest by other competing parties, and a sign that competing parties are planning on presenting an unconditional offer. In today’s market the wining bid will, in most cases, be an unconditional offer, so any research respecting the suitability of the property will be done in advance by serious prospects.
For this reason, the agent representing the seller should have a complete set of strata documents available for all prospective bidders before commencing the marketing process. I typically also advise my sellers to order and make available to prospective buyers, a building inspection report from a reputable inspector in conjunction to insure a maximum number of bids.
Many buyers are reluctant to incur the expense associated with ordering such a report in a competitive situation for obvious reasons. When the seller order this report the related costs are only incurred once.
Sellers typically achieve optimal results by ordering such a report; the concern by some that this could lead to the seller being liable for defects not discovered in the report are, in my opinion, completely unfounded.
As Realtors we are obligated to recommend a building inspection report for every purchase, or risk being liable for any defects found after the fact, unless we have our clients sign a waiver that they are prepared to take the risk notwithstanding our advice. The truth of the matter is that these reports are really a bit overrated due to the costs to rectify the defects uncovered by them rarely exceeding the price of the report.
This holds especially true for strata property where any costs associated with maintenance and repair of the exterior and building envelope is the responsibility of the strata and where minutes of meetings, the Depreciation Report and various other studies reveal much about the condition of the building.
Even in the single-family home category, newer homes hardly ever harbour any surprises with modern building code regulations and oversight and with seller disclosure requirement and latent defect legislative provisions. Older homes should be examined more carefully, but a good Realtor can often tell if a building inspection report may be warranted or not.
I’m told by building inspectors in Victoria that their business has dropped off dramatically in the past two years regardless of the increase in sales activity as a direct result of buyers forgoing them in bidding wars and offer competitions.
As the offer deadline approaches your buyer’s agent will keep in constant contact with the seller’s representative to monitor the number of offers expected by the deadline, how many are expected to be unconditional, and to get as much information as possible about the competition. It is surprising how much information can sometimes be gleaned from the seller’s agent by asking the right questions in a strategic and tactical manner about the other offers.
Typically, it’s easy enough to find out if competing offers are unconditional, if they meet the seller’s preferred dates, and if they are above or below the asking price, etc., though some agents are very tight lipped about everything under the mistaken impression that they are obligated to maintain absolute secrecy.
It is not illegal or unethical at all for the seller’s agent to reveal information about any offer to other parties, providing it is in their client’s best interest.
The final offer should incorporate all the intelligence gathered on marketing process and it’s results, be unconditional if possible, bear a large non-refundable deposit, typically in the $20,00 to $50,000 range for properties under $500,000 and $50,000 to $100,000 if the asking price is greater, and incorporate the sellers preferred dates for possession and completion of the sale.
The price is a factor of the competition you are facing as well as the most recent comparable sales data, and will most likely exceed your expectations, so be ready to pay a bit more than you initially expect.
Your agent should investigate with the seller’s representative if a “referential offer” would be considered by the seller. This is an offer where the price in your offer is relative to what your competition is offering that will contain the relevant clauses to reflect this, and provide that you will pay a fixed amount above the price of your highest competitor. I have found this to be a highly effective strategy providing the premium above the nearest competing offer is large enough. It should be at least $5000.00 to $10,000 for offers under $500,000 and $10,000 to $20,000 above as a general guideline.
Agents and lawyers sometimes advise their seller clients against accepting such an offer citing litigation risk, but I believe this is unwarranted and rather a function of laziness on the part of seller representatives, as a properly structured, presented and managed referential offer can easily yield superior results for the seller in a bidding war without any risk of litigation whatsoever.
Winning a multiple offer competition is both rewarding and exhilarating while being on the loosing side is not only extremely disappointing but also rather exhausting and discouraging and not something you want to go through multiple times. For these reasons the right agent and the right tactics and strategies are ever so important to greatly improve your odds.