Price as a sales strategy in starting a property bidding war in Toronto
Realtors use all sorts of tactics to sell property but what is loved by almost all real estate agents is a when they get multiple offers for a property.
Bidding wars sell home faster, just like viral marketing spreads your marketing messages fast. Every marketer is looking for a viral marketing idea for her next launch and every agent, is looking for multiple offers on their next listing.
The thrill that comes with getting multiple offers is addictive. When a multiple buyer scenario is in full force, it is no longer if the property is going to sell or not, the bets are on how much it will sell for and how fast the deal will be done.
Buying a property is a emotional decision, organic price war starts when two parties set their hearts on a particular property, in most cases the winner will go over his budget to get it. Then there are some agents in Toronto who artfully engineer scenarios to create bidding wars. These agents do it by using the price as a bate and list properties at below their market value.
Typical scenario plays out to be like this, you visit an open house in a neighborhood in Toronto you would like to purchase a property in. Property looks very nice, price is below what other properties are going for. Prospective buyers are informed about the offer timeline as to when it will be accepted — at which point, in a hot market like Toronto where price to income ration is at around 9, several potential buyers make offers and bidding war starts. The property ends up selling for way more than what the asking price was, at times up to 30% more.
Why does this happen? Atif Mirza a real estate agent with Remax says, “from the time someone makes a decision to purchase a property, to the time they actually find something they like, on average it takes good few months. In those months loads of properties have been seen and you have a good idea of price points in an area. When you see a nice house 10% less than the going rate in the area, you emotionally commit yourself to it. Two main reasons you go higher are, first you found something after committing so much time and second, imagine going through the whole process of finding something you like all over again?”
It’s a simple math. When multiple people want the same property and are willing to outbid others, the final price of the property will go up.
It is a known strategy not only in Toronto but other cities in Canada like Ottawa, Montreal, Vancouver and most other cities. Canmore is becoming hot place to buy for Americans and it is used there also. The practice is not limited only to Canada.
Victor Richards, a real estate agent in London UK, asserts, developing strategies for bidding war on properties in London is a known and proven tactic. Some firms are known for it”
“Trying to get your client to back off is a battle on its own, I have first hand experience with a buyer who refused to take my advice on what the market value of the property was.”
Mirza agrees, “sometime it is tough trying to tell a client who has his heart set on buying the property, that price is not inline with market.”
Winning in a market where supply is limited but demand is not, requires you to make sure you have your cards in order. Very tight supply in markets like Vancouver and Toronto is leading to bidding wars.
Here are some tips on how to increase your chances of winning.
Most people remember their first, home, car, job and love. Same holds true for selling a property. The first bidder has more success. The seller is selling for a reason. The first bidder brings them closer to or at least allows them to visualize what the seller will do after the home is sold. The first bidder is the first person who can help them get closer to the sale.
Be the first bidder but do it with class, be nice, polite seller will already start to visualize you occupying the house.
You can also use an Escalation clause
eBay does this with its auctions. You decide how high you are willing to go and it automatically bids on your behalf until you purchase the product or it goes past your max limit. In real estate this is an amount of money a home buyer agrees to increase his/her offer, if there are other bids.
For example, purchase price of the home is $500,000, but you expect it could go as high as $550,000. Put in an escalation clause saying you are willing to go as high as $560,000 (if you are). Make sure, however, that the clause also says the seller can only take the winning bid up to a level just above competing offers. Same as eBay, just because you are willing to go up to 500 on a product, if the highest competing offer is for 410, your offer will be just a bit higher. In other words, if your competitors only goes as high as $530,000, the seller can’t expect you to pay $560,000, your winning offer will be at $531,000.