Expert Answers – When Bidding Wars Backfire

We often hear media reports about homes that sell for $100K – $500K+ over the asking price but how often do you hear about when homes are priced for a bidding war but the bidding war never materializes? We thought we’d highlight a few of our recent experiences and discuss specific points on why these bidding wars were unsuccessful. It is important to note that occasionally, the Seller’s expectations are not met.

Beginning with an overview of a ‘bidding war’ or ‘holding back offers’ is the best first step.

How a bidding war is supposed to unfold;

1. Realtor and seller under-price the home. The listing price attracts buyers from different price ranges.

2. The Realtor (and Seller) specify a date (typically 6-8 days from when the listing is uploaded to MLS) that they will review/accept offers.

3. On the offer date, the Seller and Realtor review the multiple offers and choose one they would like to accept.

There are other variables that are involved, but these three steps highlight the overall process. To create an effective multiple offer situation, the Listing Realtor should provide a home inspection/termite inspection for Buyers to review in advance of the offer date along with any other information that will help the Buyers make their decision to submit an offer (i.e. utility bills, property tax info, a survey, receipts for work completed, building/work permits that have been opened and closed).

What the Seller and Listing Realtor are hoping to achieve on the date of offer presentation is a situation where there are 3,4,5+ offers, all of which do not have conditions that would allow the buyer to rescind or “back out” of the contract. They’re also hoping to find a buyer who will pay tens of thousands of dollars over the asking price and beyond the Seller’s wildest dreams.

Occasionally, this happens. Rarely though (in my opinion) does someone pay drastically over the asking price. You may find a Buyer who pays $10,000 – $20,000 over what we may deem to be fair market value, but in it’s truest form, the willingness for this buyer to pay $10K-$20K more than the next buyer, does represent fair market value.

Given the lack of low-rise inventory in the Toronto market, it is common place to see bidding wars being set up for houses in hot areas of the city. Personally, we’ve been involved in bidding wars with 10, 15 or even 25+ offers. It can be a silly and ridiculous process with 15+ offers on a property. Houses will sell for $50,000 – $350,000+ over the listed ‘asking price’.

How does a Bidding War Backfire?

When a Realtor (or Seller) does evaluate the dynamics of a changing market, when a similar property is listed for sale or when a property is listed/priced too high, a bidding war may not occur. If the market shifts, as it does, and your decision to list your home coincides with this time frame, you may be stuck on the market without the buyers you so desperately need. Result – no bidding war on your home.

If you list your home for sale and an identical home (or homes) are listing at the same time, down the street, the Buyers may choose to bid on that home and not yours. Result – no bidding war on your home.

If you price your home too aggressively from the onset (i.e. instead of listing your home at $699,900 with the hope of selling it for $850,000, you list your home for $850,000 with the hope of getting offers around this price or higher) you may deter Buyers from getting involved and bidding on your home. Buyers realize that you’re already at the higher price range of where you should be listed and do not want to contemplate the prospect of paying $900K for a home that should sell for about $850,000. Result – no bidding war on your home.

These are just a few scenarios where the bidding war situation does not work for the Seller. There are a myriad of other factors that can affect and/or deter a bidding war situation from occuring (i.e. home shows poorly, home is in disrepair, etc.).

Imagine you’re a Buyer. You’ve been waiting for the offer presentation date and it has finally arrived. The home was listed for sale (hypothetically) for $699,900. No offers came in. The Seller is unwilling to accept an offer of $699,900 for their home. They wanted $850,000. The Buyer doesn’t want to pay $850,000 because no one offered the $699,900 asking price. The Seller then (likely) terminates the listing and re-lists for $850,000. Buyers who were considering the listing are now perplexed because the home was for sale for $699,900 and didn’t sell. It is now priced at $850,000. Seems a bit weird, no? Ultimately, you can explain your bad timing to prospective buyers, the fact that another similar home was for sale down the street and was accepting offers on the same night which resulted in no offers being submit on your listing, but it all seems like lip-service to a Buyer. You were priced lower and didn’t sell. Why are you priced for more now?

Bottom line – be prepared when you are listing your home for sale. Understand the process and the strategy you’re using to sell your home!

 

 

About

Start typing and press Enter to search