Home Bidding Wars - What NOT To Do
Thursday May 13th, 2021Share
Complaints to real estate broker regulators (RECO) have been on the rise as home buyers are trying to out bid each other in limited listings available in the current real estate market. From April 2020 to April 2021 …”there has been an increase of 38% of these types of complaints related to home buying,” according to Brian Buchan, a spokesperson for the Real Estate Council of Ontario.Home buyers are calling professional real estate regulators to build more ground rules in bidding for listings and enforce ethical guidelines in this hot market.
It has become common to hunt for homes, finding one, and trying to push an offer. But even with reasonable and timely efforts, most home buyers still end up engaging in blind offers or bidding wars at this time. So here are some tips on what NOT to do that can prepare a home buyer for these bidding wars.
Not prepare your paper works
There will be a new stress test coming in effect June 2021. So it is highly encouraged to get your mortgage broker to make sure your mortgage appraisal is up-to-date with the current uninsured mortgages rates (minimum qualifying rate of 4.79%) and good for the next 120 days.
This new rate, according to Canadian Mortage Trends article, “...requires borrowers applying for uninsured mortgages—typically those with more than a 20% down payment—to qualify at their mortgage contract rate plus two percentage points or 5.25%, whichever is higher.”
This is a crucial pre-bidding step to ensure you got your numbers down correctly and that you can afford a listing that catches your eye.
Go over your budget
With your paperwork completed, you can now look at a realistic budget that you can go with on potential listings and even on bidding wars.
Some of the complaints filed to RECO was that some real estate agents have gone unethical - engaging in blind offers. In this case, you are unethically informed on how much are the other bidding offers on the one listing from other home buyers and some agents encourage you to put in more offers than the other bidders to win the listing. This should not be happening as in most cases, this is just to drive up the offer prices even if some of these alleged home buyers are fictional and not actual home buyers. This happened to a Toronto couple trying to purchase a home in Hamilton, you can read their story here.
So to prevent this from happening to you, find a professional real estate agent who you can tell can balance their sales commission with your best interests and remain fair at the same time. Knowing and sticking with your budget can also prevent you from going over the top in bidding offers.
Remove or waive conditions in offers
Home inspectors, real estate lawyers, and ethical real estate agents are some of the professionals that would tell you to reconsider your choice if you decide to offer a bid that has waived or no conditions. These conditions are designed to protect the home buyers from unexpected or undisclosed issues with the property they are looking to buy. These usually include but not limited to property or home inspections, buyer financing, state of title and status certificate.
Home inspections is a must to know the current physical state of a property. This should not be waived or removed just to win over a bidding war. If a home buyer finds an issue in a completed inspection, this would give them time to think over the costs to correct the issue and then to back out or go ahead with their offer to the home seller.
Buying conditions pertains to making sure the home buyer is qualified and able to financially afford the property after all proper assessments. In most bidding cases currently, the home buyer has to put out more money than the mortgage they have qualified for. This happens after a house appraiser has determined that the property has less value than the offer pricing, and the home buyer has to come up with the difference between the actual approved mortgage and the offer pricing they have put out to win the listing.
Also, a review of the state title by a real estate lawyer can let you know if your property has any existing encumbrances (any existing or pending covenants, easements, building restrictions, rights of way, registered mortgages or charges.) and also confirm its zoning so you can be sure you can use your property for what you plan (e.g. renting basement, home business, etc.)
There is such a big risk in not putting in reasonable conditions on any home buyer’s offer so be sure you know what your listing offers can accommodate.
Go out of the market
The last thing you would want to do out of frustration is going out of the market and stopping your efforts to find your dream home. Your dream home might not just be exactly what you wanted - a bit further than your preferred location or lacking that fantasy big fireplace you have in your mind, etc. Talk to your real estate agent to find a practical and attainable checklist of a potential dream home. A little compromise might create more listing options for you.
In this highly competitive market, you need to get all the help you need to get the best market value of your home and or get your dream home at your sight. Talk about your real estate needs with JoAnn Visaretis so you can be given all the options you can have to remain competitive in putting out offers and being assured of ethical and professional services.