7 Ways to Win a Real Estate Bid

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There is no sure strategy to win a real estate bid. Instead, there are eight distinct tactics you can use to maximize your chances of winning and getting the house you want. The important word to focus on here is chance. Everything about winning a bid revolves around chance. You’re weighing your bid on the chance that it is the most attractive compared to the other bidders. You’re weighing your bid on the chance that your timing is good, and that the seller’s emotions are in your favour. In effect, when you bid on a piece of real estate, you’re making a bet, and you’re hoping that bet doesn’t turn into a bidding war. If it does, here are seven ways to win a real estate bid in Canada.

1.  Define Winning

What does winning a bid mean to you? Does it mean you get the house? If so, that’s simple, double the offering price, and you’ll get that house in seconds flat. However, chances are that’s not feasible for you, nor is it wise. Winning a real estate bid means paying a price that is comfortable to you and acceptable to the seller. Winning means you pay as close to market value as possible without going over, preferably paying even less than market value.  However, with real estate markets as hot as Toronto, that’s a challenge!

Unless you’re dead set on owning a certain property, you should be willing to walk away. Sometimes the best way to win a bid is to give up on it. It sounds counterintuitive, but if you’re able to give up because you realize you can’t meet your definition of winning, that means you’ll be able to bid on another property in a way that would meet your definition of winning. That is wise.

2.  Time Your Bid

Timing is everything when it comes to buying a house. You need to plan to make your bid within the best window of opportunity. As soon as a property lists, a stopwatch starts to tick off in the minds of the buyer and the sellers. The seller worries that the longer their property sits on the market, the less money they’ll make off it, not to mention the more time they’ll have to live awkwardly in a home they need to show off to potential buyers.

The buyer worries that the more time passes, the more people will bid on the property they’re interested in. More bidders mean more competition, and they start to worry their initial bid wasn’t high enough. Maybe they should make a higher bid. Time equals anxiety for both parties, and the party which can manage that anxiety the best will profit most from the transaction.

If you want to be the party that can handle that anxiety, get in fast and get out faster. Track the property you’re interested in ahead of time and make a fair bid as soon as it goes on the market, preferably before it lists on any MLS’s. It helps to have a broker in your back pocket who can help you get your deal in before anyone else. Whatever you have to do to strike while the iron is hot, do it.

3.  Give Yourself Headroom

When musicians walk on stage, they usually turn their amplifiers up to about 60% volume. They do this so that when the situation calls for it, they can turn their amplifiers up even higher to get that extra umph. That’s called headroom.

In a real estate bidding situation, you want to do the same thing with your bid so long as your final price meets your definition of winning. Whatever offer you make, be prepared to pay 10%-15% more. The more headroom, the better, so long as you don’t go against your definition of winning the bid. Headroom is important only when you’re engaged in a bidding war, i.e. when the seller contacts you for a second bid. If you don’t have the headroom for a second bid, walk away, and you’ll win. If you do, bid with it.  If it’s any consolation, in a seller’s market like this, even condos appreciate at a good rate, making your high bid an investment into future gains.

4.  Pick Your Battles

You can’t lose if you don’t fight. Picking your battles goes hand in hand with defining what winning would mean for you as a buyer. When dealing with real estate bids, the odds are in the seller’s favour, especially in Canada, where the seller dominates virtually every market is dominated by the sellers. They have all the leverage and all the information (they know what other buyers are bidding and you don’t). Don’t fight the buyer. That would be like sitting down at a poker table where the dealer can see everybody’s cards. You can’t win.

Instead, before going in on a property, try to figure out which battle you can win before it starts. For example, if the seller may prefer a different closing date or inspection request.  Could you win by being more flexible with your offer in other ways besides monetarily?  If you get into that bidding war on money alone, would getting that house meet your definitions of winning? If that answer is no, don’t engage and find another battle to fight.

5.  Diversify Your Strengths as a Buyer

Usually, in real estate, the question of who wins the bid comes down to cold hard cash. If you want to get that house, you can just throw more money at the seller than anyone else is willing to throw. But as we said earlier, not many people will ever consider this an option, nor should they. If you’re not willing to go over a certain limit of headroom, there are other things as we mentioned above you can do to strengthen your bid.

You can get pre-approved (not just pre-qualified) for a mortgage, signaling to the seller that not only are you willing to put money down, but you’re also ready to follow through entirely. It might not sound like much, but literally, anything to distinguish you from the other bidders besides your price can be the difference between winning and losing.

6.  Make Your First Bid Count

Most of the time a seller makes their decision after one round of bidding. That tells you that of the ten or twenty bidders, somebody made an offer the seller couldn’t refuse. Make that kind of offer each time you bid on a house. Use headroom as a fallback plan, not as your main strategy. Your first bid should be thought of as your only bid (even if it isn’t). Work with your broker to figure out what that number ought to be and give the seller the price you’re willing to pay. If they don’t like it, they’ll either go with another bidder or negotiate further with you. Start with a strong footing with that first bid, and that negotiation process will be much smoother and more advantageous to you than it would be otherwise. Remember, it’s not about “beating” the seller; you can’t. It’s about meeting your definition of winning.

7.  Lure the Seller by Letting Your Guard Down

This tactic to winning a real estate bid should only be used in exceptional circumstances. What letting your guard down in this situation means is that you’re making a clean offer. You’re locking yourself into the property regardless of terms and contingencies. You’re opening yourself up to a lot of risk by doing this. Your bid could get accepted, and it turns out there are major problems with the property. A clean offer puts you at the mercy of the seller, who could leave you on the hook for weeks or months before finalizing the deal.

In short, don’t let your guard down through the clean offer unless you are truly desperate to get a certain property. A clean offer with enough cash behind it can overpower most other bids, but the risk is commensurate with that reward. It’s like crossing the streams in Ghostbusters; it is truly an option of the last resort.