Canada’s housing market keeps changing. How to navigate the bidding process

This blog post is a part of Global News' Home School series, designed to provide Canadians with the essential knowledge about the real estate market that they didn't acquire in school.

You're at the final stretch of an extensive search for a new house. You've discovered the perfect home of your dreams, and now you're racking your brains attempting to determine the precise arrangement of numbers and terms needed on an official contract to persuade the current homeowner to sell their property to you.

The price being offered is only one aspect of what real estate agents interviewed by Global News claim can be a thrilling, but occasionally daunting, undertaking.

According to Trish MacKenzie, a real estate agent at Royal LePage Estate Realty in Toronto, buying a property is a significant investment both emotionally and financially. To determine the accurate value, one needs to consider both aspects.

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Here's the essential information you should understand regarding creating a bid that sellers cannot overlook. This includes considerations such as the bid price and terms, as well as other non-monetary factors that can influence the seller's decision in your favor.

What's In A Bid?

The process of bidding differs across different provinces, and in places like Ontario, there are pre-designed forms available to serve as the foundation for preparing the proposal papers.

According to Elliott Chun from Partners Real Estate in Vancouver, once you have affixed your signature and presented it to the seller, this document transforms into a contract that enforces legal obligations.

Aside from jotting down your proposed cost and deposit amount, you will also indicate the timeframe for the desired completion of the transaction. This signifies the moment when the lenders and attorneys will usually collaborate to transfer funds and facilitate the exchange of keys, allowing you to take ownership of the property, as stated by Chun.

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The bid document you present will additionally encompass any stipulations you are associating with a transaction - provisions that must be satisfied prior to the finalization of your proposal. Typical stipulations may entail conducting a thorough examination of the property, clauses necessitating the sale of your own residence prior to proceeding with this agreement, and conditions related to financing.

If you haven't obtained a pre-approval for a mortgage prior to entering into a situation where you need to make an offer, it would be cautious to secure this beforehand before committing to any paperwork. Chun cautions that the recent increments in the interest rate by the Bank of Canada might impact the amount of loan you are eligible for in the long run.

Expected increase in interest rates likely to have an impact on both homeowners and prospective buyers in Calgary.

Implementing certain measures can provide reassurance to purchasers who are unsure about their financial situation or possess lingering doubts during the process of buying a home.

However, MacKenzie cautions that certain circumstances can cause sellers to hesitate. According to her, sellers always prefer a solid offer without any uncertainties when it comes to selling their property and making their own real estate plans.

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Decoding Various Offer Situations

Chun explains that sellers can establish the bidding process in two different manners, with one option being considerably more buyer-oriented.

In case there is ample commotion in the market you are exploring, vendors may choose to schedule a specific date and time to evaluate all the offers they receive for their property simultaneously.

In this case, the idea of rivaling other offers can motivate potential buyers to enhance their own proposal, either by removing certain conditions or increasing the amount offered. On occasion, the agent representing the seller may approach your representative and inquire if you are willing to raise your bid once all the offers have been gathered.

“The concept behind this is that the seller is seeking to create curiosity and numerous bids. It then resembles a situation similar to an auction,” Chun states.

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At 3:55, there are scarce supplies of available properties, resulting in intense competition among buyers in Saskatoon's housing market.

New regulations are set to be implemented in the Lower Mainland of British Columbia, aiming to provide greater transparency in offer date scenarios. Starting from July 17, sellers within the jurisdiction of three local real estate boards will be obligated to reveal the number of offers they received within 24 hours after the offer date concludes. This will serve as a more accurate indicator of the level of interest in the property. However, the actual sale prices will not be disclosed, as there is a possibility that financing or other conditions might not be fulfilled, resulting in the home being relisted.

The province of Ontario introduced fresh regulations the previous year that permit individuals to optionally reveal the quantity of bids made on a property. This move aimed to mitigate the influence of what is known as "blind bidding," a practice that numerous people assert leads to artificially inflated prices in the housing market.

The regulations concerning the disclosure of offers differ among different provinces and territories, as well as their respective local real estate organizations.

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In an alternative scenario, the seller is open to accepting offers at any given moment.

"This is extremely pleasing news for many purchasers in the majority of situations," Chun remarks.

When a buyer is unsure about when a seller is examining offers, these circumstances usually provide more opportunities for bargaining, according to Chun. Rather than seeking a competitive bidding process to increase the price, he explains that these sellers typically state their desired selling price in the listing, indicating their genuine aspirations.

Although such situations are less common in booming real estate markets, in Vancouver he has observed an increase in "anytime offer" listings during the Bank of Canada's recent round of interest rate hikes.

There exists a contentious alternative known as pre-emptive offers or "bully bids." In this case, a purchaser presents a bid for a property, usually quite generous, despite there being a scheduled offer date, aiming to avoid a competitive bidding situation and persuade the seller to forego waiting for the said date.

According to Chun, in October of last year, the Real Estate Board of Greater Vancouver prohibited the practice of making early bids when sellers choose a specified date for offers.

As implied by the name, these types of offers do carry a slightly negative undertone, and according to MacKenzie, some sellers refuse to consider preemptive bids on moral grounds.

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Nevertheless, she argues that there are periods in the market when aggressive bids are suitable — and the present moment could potentially be one of those instances.

According to MacKenzie, the market has been affected by the Bank of Canada's decrease in interest rates during 2022. This has led to some sellers feeling uneasy and concerned that they may not receive the price they are expecting for their homes when they go up for sale.

"Currently, it is arguably an ideal moment to proactively place a (bid)."

Setting A Fair Price

MacKenzie explains that to determine the proposed amount, she examines the recent selling price of the house in question and then examines the increase in value of properties in that neighborhood to estimate the present worth of the home.

Chun suggests that establishing a reference point by analyzing similar properties, such as other condos sold within the same building, is the usual initial step in determining the appropriate price range. Afterward, one can consider factors like renovations or outdated fixtures to make appropriate adjustments to the asking price.

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However, when there are several offers on the table, bargaining can become "highly charged" for both the buyer and the seller, according to Chun.

The Okanagan housing market is positioned more favorably at 1:57.

Once the initial price is settled upon, Chun suggests his clients establish a "maximum limit" as well. This way, during the process of bargaining, purchasers do not exceed their means or make impulsive financial choices that they may struggle to maintain in the future.

According to MacKenzie, determining the maximum amount entails considering whether you would feel disappointed if another bid surpassed yours by $5,000. Discovering that limit involves finding a sweet spot where you don't lose out on a desirable house while also ensuring you don't overspend.

"We must assure you that you won't experience any regret as a buyer if you remain steadfast," she explains confidently.

Can A Letter Make A Difference?

Purchasing a house goes beyond mere financial value.

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According to MacKenzie, when you're formulating your offer, the most effective approach stems from understanding the objectives your seller aims to achieve through the transaction.

She enjoys inquiring the alternate representative about the seller's incentives, such as whether the seller has spent their entire life in the property and is now moving to a care facility, or if it's an investor striving to achieve a specific profit margin.

According to MacKenzie, if the seller is willing to provide more details, you can leverage this information to enhance your offer, even if you have already reached your maximum budget.

Changing the deadline for the completion of a real estate sale can be beneficial in different situations. If the parties involved are eager to sell the property as soon as possible, an earlier closing date would be advantageous. On the other hand, if someone desires more time to search for their next home, extending the closing dates would be more suitable. Additionally, depending on your preferences and ability to manage, you may choose to forego necessary repairs identified during an inspection or request the inclusion of furniture in the sale.

According to MacKenzie, there is room for negotiation on every single element of a house.

In my perspective, the key approach is to discover methods that ensure a hassle-free and effortless experience for the individual you wish to collaborate with. The goal is to find ways to simplify the process and make it convenient for them to agree with you.

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Sometimes, it's possible to win over a seller by crafting a heartfelt letter where you introduce yourself and express your deep interest in their house. You might even consider attaching a photograph of your family to enhance the personal touch.

Chun shares that he has achieved positive results with this method, asserting that it was instrumental in his clients from British Columbia closing a deal last autumn when they were faced with two identical offers. The heartfelt letter written by his buyers played a crucial role in persuading the sellers that their cherished abode would find a new loving family who would create lasting memories within its walls.

"I absolutely love storytelling," Chun expresses.

According to MacKenzie, sending a letter may not be effective in all situations. For instance, if lawyers are involved in a transaction for a deceased tenant or if the seller is an investor or builder driven by profit, a heartfelt letter may not have much impact. Furthermore, not every seller will take the time to read a letter, especially when they become aware of the buyer's personal circumstances, making it harder for them to reject the offer.

However, if by any chance your letter reaches a seller who is sentimental about their previous abode and wants to ensure that it is passed on to responsible individuals, MacKenzie suggests giving it a try.

I can't find any disadvantages to penning a letter. It's a resource at your disposal. So, why not employ every resource available to you?

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Can You Withdraw A Bid?

If your offer is approved and you suddenly feel hesitant, it often becomes challenging to back out of an agreement.

According to MacKenzie, if you want to cancel an accepted offer, you must have precise and supported reasons. Usually, you will forfeit the deposit you made as part of the offer, but there are a few cases where this rule doesn't apply.

In the event that the terms of your agreement have specific requirements which are not fulfilled, you can back out of the agreement without forfeiting your deposit. For example, if you have a condition for an inspection, the inspection might reveal an unexpected problem with the property that alters your perception of it. Similarly, if you have a condition for financing, it may not be met if your lender is unable to provide the necessary mortgage for the home.

Chun states that purchasers in B.C. are granted a "rescission period" of 72 hours to retreat from the agreement. During this interval, although the buyer is still liable for 0.25 per cent of the home's buying cost, this consequence is significantly lower than forfeiting a deposit by backing out of the agreement.

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2:41 Explore Our Home Preview: Areas to address prior to presenting your abode on the market

In Ontario, Mackenzie mentions that the minimum deposit usually equals five percent of the bidding price. However, purchasers have the option to increase this amount to demonstrate their heightened commitment. Nevertheless, there is a potential downside as they may forfeit the additional funds if circumstances compel them to withdraw.

According to her observations, if you cancel an agreement after it has been agreed upon, you may face the risk of not only losing the initial payment but experiencing additional losses as well.

In case the purchaser fails to sell their property at the initially agreed price mentioned in your initial agreement, you might face legal action for the disparity between the original price and the eventual price received from another buyer.

Once more, it's important to remember that a bid functions as a legally enforceable agreement. MacKenzie advises thoroughly researching, being well-prepared, and being aware of your limitations before committing to a potentially expensive choice.

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"Refrain from hasty choices," she advises. "Ensure that you are genuinely dedicated to the bid before submitting it."