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

This article is part of Global News’ Home School series, which gives Canadians the basics they need to know about the housing market that they never learned in school.

It’s nearing the end of a long house hunt — you’ve found your dream home and you’re wracking your brain trying to figure out what combination of digits and conditions to put down on a legally binding document to convince someone to sell their home to you.

The bidding price is just one element of what real estate agents who spoke to Global News say can be an exciting, but at times overwhelming, process.

“This is one of the biggest investments of people’s lives on the emotional and the financial side,” says Realtor Trish MacKenzie with Royal LePage Estate Realty in Toronto. “And it takes both of those lenses to put the right number in.”

Here’s what you need to know about how to craft a bid sellers won’t ignore, from bid price and conditions down to the non-financial aspects that could sway an offer in your favour.

The bidding process varies from province to province, with some jurisdictions such as Ontario having templates that act as the basis for filling out the offer document.

This becomes a legally binding agreement once you’ve signed and submitted it to the seller, notes Elliott Chun of Partners Real Estate in Vancouver.

In addition to writing down your bid price and amount for a deposit, you’ll be specifying the schedule for when you want the deal to complete — the point at which Chun says the lenders and lawyers will typically act in tandem to transfer money and set up the exchange of keys for you to take possession.

Your bid document will also include any conditions you’re attaching to a sale — clauses that need to be fulfilled before your offer is finalized. Common conditions include getting an inspection done on the house, clauses requiring your own home to sell before this deal goes through and financing conditions.

If you haven’t gotten a pre-approval for a mortgage before heading into an offer situation, it might be wise to get this locked down before signing any documents. Recent increases in the Bank of Canada’s interest rate could affect how big of a loan you qualify for in the end, Chun warns.

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Having conditions in place helps to protect buyers who are not certain about their financing or have other lingering uncertainties in the homebuying process.

But MacKenzie warns that conditions put pause in the seller’s mind as well — a “firm” offer with no conditions is always preferable for those trying to sell and make their own real estate moves, she says.

Chun says there are two ways a seller can set up the process to take bids — one of which is much more friendly to buyers.

If there’s a lot of activity in the market you’re shopping around, sellers might set up an offer date, which dictates a day and hour that they’ll review all the bids coming in for their home at the same time.

Here, the suggestion of competition with other bids can push prospective buyers to sweeten their own offer, either by waiving conditions or raising the price. Sometimes, a seller’s agent will come back to your representative and ask whether you want to increase a bid after all the offers have been received.

“The idea there is that a seller is looking to generate interest and multiple offers. It’s then like an auction scenario,” Chun says.

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In B.C.’s Lower Mainland, new rules are coming into effect soon to give more clarity into offer date situations. On July 17, sellers covered by three regional real estate boards will be required to disclose how many bids they received 24 hours after the offer date completes to give a realistic gauge of interest in the home. Sale prices won’t be disclosed in case financing or other conditions fall through and the home ends up back on the market.

Ontario implemented new rules last year allowing for a voluntary disclosure of the number of offers on a property in an attempt to reduce the impact of so-called “blind bidding,” which some argue inflates sale prices on homes.

The rules around offer disclosures vary across provinces and territories and their local real estate boards.

The other situation sees a seller willing to accept offers at any time.

“This is music to a lot of buyers’ ears in most cases,” Chun says.

While a buyer loses the certainty of knowing when a seller is looking at offers, these situations tend to come with a bit more room for negotiation, Chun says. Instead of looking for a bidding war to push up the price, he says these kinds of sellers tend to put their actual ambitions for a sales figure in the listing price.

While these kinds of scenarios are rarer in hot housing markets, in Vancouver he’s seen a few more offer-any time listings pop up during the Bank of Canada’s latest rate hike cycle.

There is a third option that can be controversial: pre-emptive offers or “bully bids.” This sees a buyer come forward with a typically generous bid for a home that has an offer date in an attempt to circumvent the bidding war and convince the seller not to wait for the date in question.

Chun notes that last October the Real Estate Board of Greater Vancouver actually banned pre-emptive bids when sellers opt for an offer date.

As the name would suggest, these kinds of offers do come with a bit of a negative connotation, and MacKenzie says some sellers won’t even look at pre-emptive bids on principle.

However, she says there are cycles in the market where bully bids are appropriate — and now might be one of them.

The Bank of Canada’s rate hike cycle cooled down the market through 2022 and has left some sellers with “unrest” and fears that they might not get as much as they’re hoping for their home on offer night, MacKenzie says.

“Right now is probably a very, very good time to do a pre-emptive (bid).”

MacKenzie says that in order to arrive at the asking number, she takes a look at the last sale price of the home in question and then looks at how properties in the same area have appreciated since that time to get a ballpark figure for the home’s current value.

Chun says setting a benchmark with comparables — looking at condos that sold within the same building as a unit his buyers are looking in, for example — is the typical starting point for where bids should be on price. At that point, you can look at whether renovations have been done or if some fixtures are outdated to raise or lower your asking price.

But when it comes down to multiple offers, negotiations can get “very emotional” for both the buyer and the seller, Chun says.

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After agreeing on the starting price, Chun says he also advises his clients to set a “ceiling amount” so that when it comes to back-and-forth negotiations, buyers don’t “overshoot” and commit to a financial decision they can’t afford long-term in the heat of the moment.

MacKenzie says setting the top number is about asking whether, if another offer beat yours by $5,000, would you be upset? Finding that ceiling is about striking the balance between missing out on a home you love and not breaking the bank.

“We have to be very confident that you would not really have buyer’s remorse for sticking strong,” she says.

Buying a home is about more than just dollars and cents.

MacKenzie says that when you’re crafting your bid, the best strategy comes from knowing what your seller is looking to get out of a sale.

She likes to ask the other agent what the seller’s motivating factors might be, such as whether the seller has lived in the home all their life and is transitioning to a care home or if it’s an investor looking to make a certain amount of profit.

Depending on how forthcoming the seller is, this information can be used to improve a bid even when you’re at your top dollar amount, MacKenzie says.

An earlier closing date can help in an estate sale where parties are just hoping to get rid of the property quickly, while stretching out the dates can cater to someone who wants more time to hunt for their next home. You could waive needed repairs discovered in an inspection or even ask for furniture to be included, depending on what you’re looking for and able to handle in a home.

“Every aspect of a house is negotiable. Every single one,” MacKenzie says.

“The way I think about it is, what is the way that you can make this as easy and painless for the person you’re trying to work with, how do you make it easy for them to say yes to you?”

In some cases, you can endear yourself to a seller by writing a letter explaining who you are and why you’re so keen on their home, possibly including a picture of your family.

Chun says he’s had success with this approach, and claims that it helped his clients in B.C. seal a deal last fall when it came down to two equivalent offers. His buyers’ letter helped to convince the sellers that their home was going to a good place where a new family would make memories.

“I’m a huge fan of storytelling,” Chun says.

MacKenzie says writing a letter won’t work in every case: if lawyers are handling a sale for a deceased tenant or if it’s an investor or builder that has a number they need to hit to turn a profit, then a few sweet words aren’t likely to make a dent. And she says that not every seller is going to read a letter, either, as it’s harder to say “no” once you know a buyer’s story.

But on the off chance that your letter finds a seller feeling nostalgic about their old home and making sure it ends up in good hands, it’s worth a shot, MacKenzie argues.

“I see no downside to writing a letter. It is a tool in your toolbox. And why not use every tool in your toolbox that you can?”

If your bid is accepted and you get cold feet, it’s typically difficult to walk away from a deal.

MacKenzie says that to rescind an accepted offer, the reasons have to be very specific and substantiated. In most instances, you’ll give up your deposit put down as part of the bid, but there are some exceptions.

If your offer came with conditions and those conditions are not met, that will allow you to renege on the deal without losing a deposit. In the case of having an inspection condition, the inspectors’ walkthrough might have revealed a previously unforeseen issue that changes your impression of the home. A financing condition could also fall through if your lender won’t provide the mortgage you need for the home.

Chun says buyers in B.C. have a “rescission period” of three business days to walk away from the deal. In this instance, a buyer is still on the hook for 0.25 per cent of the purchase price of a home, but that penalty is much less than losing a deposit for walking away from a deal.

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In Ontario, Mackenzie says deposit amounts are typically five per cent of the bidding price at minimum, but buyers can put down more to show they’re more serious — at the risk of losing that much if they’re forced to back out.

She notes that if you terminate a deal once it’s been accepted, you could lose more than the deposit.

If the buyer is unable to sell their property for the same price agreed to in your original deal, you could be sued for the difference between that original price and what they ultimately got from another buyer.

Again, a bid is a legally binding contract — MacKenzie says it’s critical to do your due diligence, come prepared and know your own limits before making a potentially costly decision.

“Don’t make rash decisions,” she says. “Really make sure that when you are putting in that bid, you are 100 per cent committed to it.”