Earlier this month, we launched a series documenting our CMO’s experiences with buying her first home in Toronto. We started by sharing some of the financial decisions Kerri-Lynn (KL) and her partner made, as well as what it was like to go to viewings and decide what type of home they wanted to buy. This week, she and I chatted about all the bidding wars she found herself in – and how she finally “won” her dream home.
Cait: Walk us through your first bidding war. What happened?
KL: The first bidding war we got into was for a condo, which is very rare; this is when we realized how competitive the family-friendly condo market was in Toronto. Generally, it’s a good idea to see a home at least twice: once privately (so you can look at it in-detail) and again at the open house (to see how many people show interest in the property). However, with this first property, offers were accepted anytime and there were three offers on the first day it was listed.
You can usually submit your offer 1 of 3 ways: at the property itself, at the listing agent’s office, or you can send it in via fax. Most real estate agents will recommend you do it in-person (i.e. not via fax), so you can build some rapport with the listing agent and sellers, as well as be available to change your offer on the spot. For the condo, the listing agent held the offer presentations at her office, which was in Markham – and on a Friday night at 10pm. It was a really strange experience, and our real estate agent said he’d never seen that before, especially for a downtown Toronto condo.
Anyway, as the buyer, you don’t go in yourself. You basically sit and wait, while your real estate agent goes in and presents your offer to the listing agent + sellers. It’s done this way so hopeful buyers don’t get emotional, make rash decisions, etc. and also adds a level of professionalism to the whole experience. But I was literally sitting in a car waiting while our agent presented our offer and then we waited together until all the other offers were presented. After that, the listing agent + seller may decide to accept an offer (in the first round) or choose a few offers that are close and ask if you’d like to improve yours (in a second round). We didn’t make it past the first round.
Cait: Were you disappointed you’d lost?
KL: I was. I’d fallen in love with that condo and had basically already moved in, in my head. Then people tell you “everything happens for a reason” and you kind of roll your eyes at that, especially when you’re disappointed… but it’s true! It’s good we lost that one, or else we wouldn’t have bought the amazing house we have now.
Cait: Did you stop looking at condos after you lost?
KL: No, we still looked at them a bit, but just added houses to the mix. When we did the cash flow analysis on large two-bedroom condos with large corresponding condo fees versus houses, a three-bedroom house was not that much more expensive.
Cait: What was different about the second bidding war you entered?
KL: Once we decided to start looking at houses, I fell in love with the first one we saw – and this is a bad idea! Our real estate agent always told us to see multiple properties, so we wouldn’t make any rash decisions or jump into something just because we loved the “idea” of it. But after seeing so many condos, that first house had everything we were looking for in a condo, and I loved the idea that we could actually afford a house!
This brought us into another highly competitive segment of the market for renovated three-bedroom starter homes. The next house we decided to submit an offer on had an “offer date”, which meant all offers were accepted only on that date. On top of being in the neighbourhood we wanted, the house was nicely updated and had a basement apartment. (Tip: If you see a home that has income potential, be prepared for the bidding war to be extra competitive!)
We registered our offer early, at our real estate agent’s suggestion, because when you do so, the listing agent has to tell you if any bully offers come in. (A bully offer is when someone submits an offer that they think is amazing, in hopes they can buy the house before it goes to a bidding war.) Most of the time, sellers won’t even look at bully offers, because they know they can get more out of a bidding war – but it’s still good to know if any have been submitted, because then you can get a sense of how competitive the bidding war is going to be. In the end, 10 offers were registered on the house, which is high, even for Toronto. All offers were presented at the house itself, which meant there were 10 hopeful buyers + their real estate agents waiting around to present.
Before you enter a bidding war, you and your real estate agent will decide between two different strategies: either go all-in with your “first and best” offer, or bid slightly below it and know that you’d be happy to go up another increment (say $10,000). Typically, if there are a lot of people (and therefore a lot of offers), you’ll want to go all-in with your highest offer. If there are only 2-3 people, though, you may go in lower and know you have some wiggle room. Because there were 9 other people making offers, we decided to go all-in. Our real estate agent thought we had a good offer, but also warned us that it would likely sell for more because of the income potential. (We’re also grateful he was honest and told us not to bid any more than we already had, as he didn’t think the house was worth more.) Like our first bidding war, we didn’t even make it past the first round. And here’s where the numbers may shock people: we went in at $140,000 over asking, and we still lost by $35,000.
Cait: That’s crazy!
KL: Yea, list prices on houses are basically irrelevant in Toronto. Actually, that’s not always true. Most houses are underpriced to spark a bidding war, but once in a while you’ll find a house that’s listed for what the sellers want. When you see something that’s accurately priced, you freak out and mentally add like $100,000 on top of that. It takes time and a lot of viewings to figure out what a house is worth, which is why it’s really important to not fall in love with the first place you see. Plus, if there’s one truth to the Toronto housing market, it’s this: a house is worth whatever amount a buyer is willing to pay.
Cait: Are you happy you lost the second bidding war?
KL: We would’ve been happy if we’d won, but it’s also fine that we lost. Looking back, the house was on a busier street, it didn’t have great curb appeal, the upgrades weren’t done exactly to our taste, and my partner actually wasn’t keen on having a basement apartment because he didn’t like the idea of having a stranger living in our house. We definitely weren’t willing to pay $35,000 more for it, even with income potential. But if our offer had won, we would’ve been ahead on a monthly cash-flow basis, compared to the house we ended up buying.
Cait: Let’s talk about the third and final bidding war you ended up in, then. Walk us through what happened.
KL: By the time we went into this one, we had built up the right mentality for bidding wars. After losing a couple bidding wars already, you can’t help but feel defeated, and you’re not exactly hopeful the next one will be a success. This mentality is both good and bad. It’s good because it prevents you from getting attached, and it helps you map out your plan from a strategic standpoint vs. an emotional one. But it’s a little depressing, too! After seeing so many homes, and losing two bidding wars already, I was emotionally exhausted and didn’t have any hope that we’d actually win this one – but we wanted to try.
We saw the property multiple times, first privately and then again at the open house. When we were at the open house, we saw a lot of foot traffic, so we knew it would be another competitive situation. I told you (and showed you) all about the house last week and we obviously loved it. I could tell my partner really loved it, because he upped our budget by quite a bit in the end. I also think we’d also just gotten to the point where we had to decide to go all-in – like really all-in, with as much as we could – because we just wanted to buy a house and move on with our lives.
This time, there were 14 offers! The listing agent gave every real estate agent a 5-minute slot to present, so our real estate agent and I (and Kingston!) went for a walk around the neighbourhood during that time. We didn’t feel great about our offer, this time, just because of how many offers there were. But less than 2 hours later, we got a callback saying that ours was 1 of 6 offers that were extremely close to each other, and asking if we had any room to improve.
When you go into the second round, you can do one of two things: leave your offer as-is, or improve it. Since there’s a chance your original offer was the highest one already, you can take the gamble and choose not to increase it. But we decided to improve our offer, because we really liked the house. Thirty minutes later, we got another callback saying that ours was 1 of 3 offers that were extremely close, and asking if we could improve our offer yet again. (A third round!) With the help of our agent, we were able to improve our offer a little bit again. The sellers also asked if we could move up the closing date by 2 weeks, which was no problem for us, because we were renters (didn’t have another house to sell first) and could move anytime. The date is what helped seal the deal, because we won!
Cait: What conditions did you release in your offer?
KL: When you enter a bidding war, you need to make a clean offer (no financing or home inspection conditions) or else there’s little-to-no chance you’ll win. So we released both, and decided to use the seller’s home inspection.
Cait: What are the risks involved with releasing both conditions?
KL: You usually don’t need to get a home inspection on a condo in Toronto – at least not new ones – so we felt fine about the first one. But for the houses, we just had to read through and trust that the seller’s home inspection was accurate. Some people still feel more confident commissioning their own inspection, but that can get expensive when you end up participating in multiple bidding wars.
As for financing, you’ll obviously want to get pre-approved first, so you know a lender is willing to give you a mortgage of at least X amount. But you shouldn’t rely on your pre-approval. If the property ends up being appraised at a value lower than your pre-approval, your lender will only loan you the appraised value and you’ll be stuck with the shortfall. CanWise will share more about how you can avoid this on Wednesday.
Throughout this entire process, KL kept track of all the forms that needed to be filled out and processes she had to go through, so we could develop the ultimate moving checklist. Stay tuned for that next week!