What to do to prepare for a bidding war
The first step to winning a bidding war is to get pre-approved for a mortgage loan. Knowing the pre-approved amount gives you the range of price that you can commit as a Buyer without breaking the bank.
In a seller's market, multiple offers from Buyers are common, which is when you find yourself in a bidding war with another Buyer for the same property. To strengthen that your offer to the Seller, be sure to show a letter of pre-approval. It is also helpful to write a love note about the property to the seller. This will not cost you anything and can help you get the house you want.
The worst way to win a bidding war is to spend more money than you thought you had. If you win the bid by offering more than you can afford, you are legally bound to the purchase price you have written on the accepted Agreement of Purchase and Sale (APS). You could potentially break the contract if the Sellers agrees to a Mutual Release Agreement. In most cases, a Mutual Release could happen but you will have to forfeit your deposit money to the Seller.
The best strategy is to NOT go over budget and stay within the approved financing amount stated on your pre-approval letter.
What you should consider when you are in a bidding war?
When you are in a bidding war, your goal is to win with the highest bid without overpaying.
While a bidding war is stressful, it's important to stay calm and remember that you'll be able to buy the home of your dreams. And if you're a first-time buyer, remember that there are plenty of opportunities to buy a home without breaking your budget.
There are a lot of things you have to consider when you are in a bidding war. You have to look at the neighbourhood and make an accurate evaluation of the property you are bidding on. Make sure to have a well-thought-out bidding strategy in place with your real estate agent before submitting your first offer.
Tips to avoid over-spending on the home you are buying
When you’re in a bidding war, it can be easy to get caught up in the thrill of the chase and convince yourself that you need to win this house at any cost.
You might think that you can’t afford to lose this house, but it’s important to remember that there will be other houses and other opportunities to buy. The home buying process is not a sprint, it’s a marathon. You need to pace yourself and stay on an even keel throughout the process.
It's very tempting to think that you will be the one winning the home you want for the price you want. What usually happens instead is buyers bidding up the price of the house, then getting into a contract that they can't afford. These buyers will then be stuck in a situation where they will lose the home they wanted if they don’t get a mortgage that is too big for their budget. There are several strategies that your real estate agent and mortgage broker can use to help you win a bidding war without overspending on the home you are buying. The important step is to work with the right professionals who have gone through a bidding war for their clients in the past.
What to do when you get into a bidding war.
Keep calm and let the real estate agent know that your negotiable and non-negotiable parameters. Price is not the only thing that can close a deal, sometimes sellers care about the Closing Date, and other attenuating circumstances that money cannot buy.
Don't forget to consider other expenses when calculating your budget. A few extra dollars a month can stretch your finances over the length of the mortgage or variable rate. Don't cheat yourself out of expenses. Before making a final offer, take the time to research the neighbourhood to make sure you are in the right neighbourhood for your needs. If you find a home you love in a desirable neighbourhood, you'll have a better chance of winning a bidding war without breaking your budget.
Frequently asked questions when buying a house in a bidding war
How do you avoid bidding wars when buying a house?
The most important thing to remember here is to draw the line between your mind and your heart. Yes, you may fall in love with a particular property, but you can’t make any decision with your heart. When it comes to buying a property, emotions have no place. You need to distance yourself from the property and try seeing it from an objective point of view.
Always check your financial situation to make sure that you can afford to buy the place. If you are going to require a mortgage, make sure that you can afford the ongoing debt services without negatively affecting your preferred lifestyle.
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