How Do Bidding Wars Work in Toronto?
Lately the market in Central Toronto is beginning to feel more and more like it did back in 2016/early 2017, with houses in premium neighbourhoods attracting multiple offers and selling well above the asking price.
Last week a 3 bedroom, 2.5 bath detached home sold in Leslieville for $1.850 million, and a detached 4 bed, 2 bath in Riverdale sold for just above $1.9 million (both sold more than $400,000 above their list price). These are huge prices for houses that are probably 1,300-1,400 square feet excluding the basement. On a per square foot basis they’re particularly impressive.
It’s been a long time since houses were selling $400,000 above their list price, and with practically every house selling way above the asking price, I figured it would be worth outlining how bidding wars work… most of the time.
1. What is Offer Day?
For those who might not know, most properties in Central Toronto have an “Offer Day.” These listings come out and in the brokerage remarks it tells me when and where the sellers will entertain offers on their home.
The asking price usually means next to nothing, as it’s really just a marketing tool to get people through the door. The idea is that with their low asking price, the agent and their clients will get multiple offers, which could drive the price up to a higher point than it might have got if they’d just listed the home for what it was worth.
Offer Day is usually 6-8 days after the listing first comes out. Some are shorter or longer but that’s the general range.
This event is usually held at either the house or the listing brokerage’s office. I personally wish everything was done via email to make things more efficient, but that’s another story. It usually happens in the evening after work. All interested buyers come to the table at the same time, and the house is almost always sold at the end of the process.
2. Offer Registration
Listings will often say something to the effect of, “Offers Tuesday at 7 pm at the house, please register by 5 pm.”
What is registering an offer?
It’s usually just a phone call to the listing brokerage. I give my name, phone number and possibly email, and the listing agent is notified that I will be presenting an offer on the property.
Some brokerages will take it a step further and require a signed Form 801, which takes it a step further and identifies who the buyers are and how and when the offer will be presented, requiring them to sign the form. A signed Form 801 is essentially a substitute for the offer itself. If another buyer wanted proof a house actually got 5 offers on Offer Day, the rules actually dictate that the listing brokerage needs to be able to produce 5 Form 801s or the offers themselves.
The “deadline” to register an offer, like the listing price, also means next to nothing. It might say 5 pm, but in my experience it’s extremely common for several offers to come in after that deadline and often just before the offer presentation is scheduled to begin.
3. What happens when your offer is presented?
If a property is holding offers at 7 pm and they have 5 offers, those agents will come through one by one to present their client’s offer.
This presentation generally lasts a couple minutes, although in some situations it can take much longer. I’ll go in, introduce myself to the owner and compliment them on their home, thank the agent for answering all the questions I’ve had, and pretty quickly I will wind up seated at their dinner table.
Sometimes the listing agent will take the lead if they want to be efficient, although most of the time the buyer’s agent is allowed to guide the process. I’ll go over who my clients are, the features they really liked about the house, etc, and then I’ll discuss their qualifications as buyers.
Then we’ll dive into the offer details. We’ll go over the key details like the offer price, deposit size, closing date, etc. Then we’ll discuss conditions if we have any, but probably we won’t because it’s multiple offers and conditions are usually non starters for sellers.
At the end I’ll ask if they have any questions, and then I’ll excuse myself, wish them luck and head back to my car.
One by one this will happen, and then once everyone has presented and the agent and their clients have weighed the offers against one another, they’ll either accept the best offer, work with one offer to iron out some of the details, or ask some of the buyers to improve.
4. What do you mean improve your offer?
I get it.
You’ve just offered 20% over the list price, and now the seller is asking for more money because your offer is “close” to another offer?
This happens at pretty much every offer presentation where there are multiple offers on houses listed below roughly $1.2 million.
At this stage buyer agents prove their value.
For myself, if I know my clients might make an offer on a home, I’m calling the agent a couple times before Offer Day to let them know we’re interested, and to establish some rapport with the agent so that they might give some more information to you on Offer Day if you ask the right questions.
I’m not saying I expect a listing agent to tell me what other buyers have offered (that’s never happened), however it’s common that if you ask the right questions they’ll leave a trail of cookie crumbs from yes and no answers that you can piece together if you’re good at what you do.
After being told that my client’s offer is near the top, I’ll ask things like if we have the best offer, how far are we from the top; $5,000, $10,000, $25,000, how many people are you allowing to improve, are there any issues with our offer other than price we could improve?
You won’t get specific answers, but you’ll usually get a couple yeses or nos and then you need to piece them together to establish where you stand relative to the pack, and where you think you need to get to to be successful.
5. You got the house! What happens next?
After all paperwork has been signed, next you’ll need to submit your deposit to the listing brokerage. From there you’ll hire a lawyer, send all documents to your mortgage specialist and they might set up an appraisal. Then you’ll set up utilities and schedule your movers.
I’ll cover the post purchase process more thoroughly in another blog post.
Ultimately if you’re a buyer looking to find a house in the central part of the city, it literally pays to work with an agent who knows what they’re doing and how to properly execute a plan in a bidding war. It might seem like luck, but when you’re planning on making an offer on a home that might receiver 10 or more offers, and it’s “the one” for you, you need to be following the advice of someone who knows what they’re doing.
This means knowing the market intimately and being able to ask the right questions and being able to read the tea leaves well enough so that you wind up winning that bidding war by as little as possible, vs winning it by so much that the listing agent doesn’t even ask other buyers to improve their offer.
For buyers who are beginning their search, make sure you ask your agent how many bidding wars they’ve won over the past few years. Your agent’s experience will likely be the difference between getting the house of your dreams or losing it to someone else, so make sure you hire someone with a proven track record of winning bidding wars.