If you want to buy a home in a hot real estate market, competing in a bidding war for a property you love can feel frustrating. Unfortunately, bidding wars have become more common. In 2024, 38% of homebuyers were involved in a bidding war, compared to 24% of buyers in 2019, according to the Canadian Mortgage and Housing Corporation.
So, how can you make your offer stand out to the seller? Getting pre-approved for a mortgage, working with a real estate agent, and making a strong primary offer are a few strategies for winning your dream home.
Key Takeaways
- Bidding wars occur when multiple bidders make an offer on a home, and potential buyers are pressured to increase their bid
- They are more common in hot seller’s markets or on properties that are competitively priced
- There are several ways you could make your offer stand out, including removing conditions, paying in cash, or writing a personal letter
What Is a Bidding War and How Does It Work?
A bidding war occurs when multiple buyers make offers on one house, and the seller asks the interested buyers to improve their offers.
Bidding wars are more likely to occur in seller’s markets when there are more buyers than houses on the market or properties priced lower than market value.
Typically, here is how a bidding war works:
- Buyers will put in a written offer and be made aware of any additional offers
- Once the seller has received all of the offers, they can begin to review them
- The seller is in charge, meaning they can choose the best offer, ask specific buyers to improve their offers or negotiate with one buyer. If a seller asks you to strengthen your offer, it is up to you and your agent to determine whether you should enter negotiation or walk away
- Once the seller accepts the final offer, all other parties will be informed that the property has been sold
If you agree to enter into a bidding war on a house, you should know the general rules that any potential buyers and the home seller need to abide by:
- Real estate agents must disclose the number of offers each time an offer is made on the property
- Every involved party should also be aware of who is representing whom in each offer
- If real estate agents agree to change their commissions at any point throughout the process, they must inform the listing agent, who informs every potential buyer
- Any time there are offer changes or new offers, real estate agents will disclose them to their buyer
Bidding Wars in Real Estate: Strategies to Win
While offering the highest bid over the original asking price may seem like a surefire way to win, it’s not guaranteed. However, other factors can improve the chances of the sellers accepting your offer.
Get Mortgage Pre-approval
A mortgage pre-approval helps to determine how much mortgage you can afford. You can use a pre-approval letter to strengthen your offer and assure the seller that you are a serious buyer who will likely receive full mortgage funding.
Maximize Down Payment
Similar to a mortgage pre-approval, a large down payment helps to prove that you are a serious buyer and your finances are in order.
Consider Offering Earnest Money
Earnest money, or a deposit, is the amount of money you offer upfront with your offer to purchase the home. There are no minimum deposits in Canada; however, a higher deposit may signal to a seller that you are serious about buying the property.
Limit or Waive Contingencies
Contingencies are conditions in home purchase contracts that could allow you or the seller to withdraw if specific conditions are unmet. Common contingencies include financing, home inspections, appraisals, or selling a current home. Limiting or removing contingencies makes your offer more attractive to the seller, as it is more likely to move forward and close without issue.
Instead of foregoing an inspection, one option is to request an “informational inspection.” This means you can get a professional home inspection, but the sale is not contingent on the results. In some cases, the seller may provide a home inspection report for buyers to review before making an offer on the home. In that case, you should ensure the report was prepared by a reputable home inspector.
While limiting or waiving contingencies is common in the Canadian real estate market, there is risk involved. For instance, if you waive the financing contingency and fail to be approved for mortgage funding or the home appraisal comes in lower than the asking price, you could face legal penalties, or even be forced to proceed with the purchase–even though you can’t afford it.
Pay in Cash
If you have the means, a cash offer is typically appealing to sellers because it eliminates the need for financing and appraisal contingencies. A cash offer can also speed up the closing process, which may entice sellers looking for a quick closing.
Write a Letter
So-called love letters or personal home offer letters have become more common recently. The letter’s purpose is to directly appeal to the seller and communicate what drew you to the property. While a personal letter may not automatically help you win the bidding war, don’t underestimate the power of a personal connection with the seller.
Leverage an Escalation Clause
An escalation clause in a real estate contract states that the buyer is willing to pay a certain amount above the highest offer if the seller receives multiple offers at the same time. For example, if you offer $500,000 plus a $10,000 escalation clause, and another buyer offers $530,000, and the seller accepts your offer, you would pay $540,000 for the home.
Escalation clauses are uncommon in Canadian real estate; some sellers and real estate professionals consider them unfair or unethical. Before choosing to leverage an escalation clause, consider seeking advice from a real estate lawyer.
Make a Pre-emptive Offer
A pre-emptive offer, or bully offer, is an offer to purchase a property presented before the presentation date. This aims to entice sellers to accept without seeing other offers. Typically, a bully offer exceeds the asking price and includes a time limit.
Consider Alternate Options for Getting a Home
Sometimes, the best way to win a bidding war is to avoid it altogether. Consider buying a home in a less competitive market, having your real estate agent look for off-market properties, or buying during the off-season, like late fall and early winter.
Bottom Line on Bidding Wars
Ultimately, there is no foolproof way to win a bidding war, but by working with a professional real estate agent and using some of the above bidding war strategies, you may be well on your way to owning your dream home in a competitive housing market. You can find your next property on Zolo.ca, whether you’re looking for a detached family home, a condo in the city, or a townhouse in the suburbs.
Bidding War FAQ
How to stand out in a bidding war?
A mortgage pre-approval letter or an all-cash offer, and a personal letter to the sellers are two ways you may stand out in a bidding war situation.
What is a strong offer on a house?
A strong offer on a house is typically at or above the listing price, with few contingencies and a flexible closing date. Mortgage pre-approval and a larger down payment further strengthen your offer.
How low should you bid on a house?
The amount you offer on a home depends on various factors, including the market conditions, the condition of the home, and the seller’s motivation for selling. Working with an experienced real estate agent is essential to determine how much to bid on a house.
Can I outbid an accepted offer?
It is possible to make an offer on a home with an accepted conditional offer. However, the seller may not be able to accept your offer if the first buyer fulfills the conditions and the deal becomes firm. On the other hand, if the conditional offer falls through, the seller may accept your offer to buy the home.
