I previously wrote about my family's search for a resale home in a blog, "Is this the year the Toronto housing market deflates?" In brief, the article discussed how we "lost" a home we loved in November 2010, due to an irrevocable deposit clause that we wouldn't accept. We've now been hunting for a home for 28 months in the Toronto housing bubble! However, last night was the first time we placed an offer in over two years -- and was the first time ever we participated in a home bidding war!
Whether you're in Ontario or in a different province, you've likely heard about Toronto and GTA housing prices. Simply stated, it's not uncommon to pay $850,000 or higher for a typical family home. I'm not joking when I say that a fixer-upper in a great area of the city is sometimes fetching over a million dollars! And this has been the way of the road for the past few years.
And with inflated housing prices as stated, would you believe that many real estate agents are also "holding offers." In essence, holding offers means that all potential buyers (through their agents) present written offers on the same specified time and date. So envision this: oodles of agents and their clients -- and cars -- descending on the same street at the very same time, fighting over the very same house! Sheer insanity!
We're very cautious with our money, and had avoided house bidding wars for years. The logic is simple: housing prices are already outrageous to begin with, so why add to the madness by competing with other potential buyers, and pushing prices further upwards? After all, the object of "holding offers" is to greatly increase the house's final selling price -- and ultimately to receive well above asking. Therefore, "holding offers" and resulting bidding wars only benefit the seller and not the buyer.
There's also a popular real estate tactic to price a home well below market value, thus creating hype and mass hysteria regarding the property. Without fail, this strategy creates a multi-offer frenzy and the home in question usually sells for well over fair market value. Some properties can sell for hundreds of thousands thousands above asking!
Anyhow, we'd avoided participating in bidding wars for over two years. As we already own a home and moving is not an urgency, we were able to delay the perhaps inevitable. Until last night. A humble family home presented itself within walking distance to our kids' school. It was a little bit more spacious than our current abode, but you wouldn't call it luxurious.
We asked our agent to put in a fair offer on the home, but then she uttered the dreaded words: "holding offers." This would mean that we'd not be able to make an offer on the home until a specified date and time. This also meant lots and lots of competition from eager buyers, as the home was priced fairly. The situation worsened when a lawn sign was erected in front of the house, advertising a weekend-long open house. Lots of house traffic to generate lots of interest!
Next, the listing agent upped his game and offered a house inspection report of the property in question, for review by all prospective buyers. The report wasn't perfect, but the home was rated "above average" in most respects. This was clearly a strategy for all bidders to put their best offers forward, and possibly waive the essential housing inspection clause. This strategy worked.
It was the morning of offer presentations and we consulted again with our real estate agent. All offers were to be registered by 5 p.m., and there was already one offer on the home. Our contract was signed and ready with a more-than-generous security deposit and above-asking offer of purchase. It was a very clean offer, even agreeing to the seller's closing date of "120 days."
My husband and I felt good about the offer, until our agent received a text message asking for a certified cheque for the security deposit -- upon presentation of offer. We couldn't fulfil this condition on such short notice, nor did we wish to. As the day wore on, there were a total of four contesting registered offers. My heart grew heavy.
The night they were accepting offers, my husband and I sat in front of our prospective home. Ten cars lined the street belonging to the five real estate agents and the five families placing bids. It truly was a spectacle, as we all sat in the dark, freezing for hours in our cars.
As we sat out in the cold, our agent received a text message from the listing agent. There would be two rounds of offers allowed for all bidders, and in both cases, we would not know if we were the high or low bidder, as per Canadian law. All bidders would be in the exact same boat. Our agent presented our offer inside the house, and then returned to our car saying that the listing agent had not provided any feedback, so we were bidding blind.
Given the favourable home inspection report, my husband and I decided to remove the house inspection clause. After the first round of bidding, we could see lights turning on in the agents' cars as the same clause was also being crossed out. Before the second round of offers, the listing agent came outside to our car and asked for some minor revisions to our offer. We asked how our offer looked compared to the others, and the agent stated "somewhere in the middle." This was the feedback we'd been seeking.
An hour later, it was time to present our second offer. Our agent went into the home with the paperwork and returned quickly. There was nothing to do now but to wait. Suddenly, some of the competing bidders and their agents drove off the street and left! The listing agent was texting those whose offers had been rejected. We were beginning to feel hopeful! Shortly after, our agent received a text message from the listing agent with the news: our offer had not been accepted. The house had sold for more than $40,000 above asking.
Although we were disappointed to have "lost" the house, another decent property turned up today in the real estate listings! There are already three offers on it, so I think we'll pass this time...
What do you think of the Toronto and GTA housing situation? What advice would you give to prospective buyers?