A bidding war is a marketing strategy where the seller and the agent agree to a listing price set below the value of a home. Offers are only entertained a set number of days after the listing has been on the market and shown to prospective buyers. The offers are then presented to the listing agent and seller, one by one and each in complete confidence of the others. After all offers have been presented the seller and their agent discuss the pros and cons of each offer in private. The seller ultimately chooses which one they prefer and accept it, or they may decide to continue negotiating usually with the best offer, in order to reach a sale with mutually agreeable terms.
The process works well in a market where there is a tremendous shortage of homes for sale, there are many buyers and prices are rising rapidly as they were between 2013 and 2017. The buyer who wins this contest would usually have an unconditional offer that was substantially over the asking price. In the spring of 2017, that amount was often as much as 20% or more, with 10 or more offers and a buyer that had usually offered and lost on 2 or 3 properties previously.
A bully or pre-emptive offer is one that is registered with the hope of being presented prior to the set date in an attempt to acquire the property prior to the frenzy of the bidding war offer date. It is entirely up to the seller if they wish to see and or deal with it. In this instance the offer is usually substantially over the list price and with no conditions.
Both of these situations require considerable expertise, negotiation skills and confidence in your agents’ abilities. A statistically based understanding of the neighbourhood recent sales, credibility with the other agent and strong sales skills is imperative to be successful in these situations.
For the seller pricing it low may bring the wrong level of buyers and pricing too high may bring no buyers or not enough to achieve the price expected, thereby leaving your home in a very precarious position.
What do you do now that your home has been potentially tainted?
Representing a buyer and advising on whether they should attempt a bully offer is also special a skill set. In this situation you usually will pay too much but hopefully not as much as you would in a bidding war. The question is how much and when will the market catch up to what you paid. Again, this requires a strong knowledge of the specific area, trends and the ability to predict future increases.
There is a lot more to maximizing your return in these situations. Your agent needs to be fluid and responsive. You need to have the confidence in your agent to move quickly and decisively. If you have any other questions please contact us.