Here in the Toronto market, if you are buying a home, there is a good chance that you will be in a bidding war.
The main thing to understand is that while it can be frustrating to see that a property is listed at 499K and winds up selling in the high 600Ks, the value of the property was always in the high 600s, and that the asking price was a marketing strategy.
As a listing agent, we see it all the time; you just list at 499, you get 3 offers at around the asking price, 2 in the high 500s, 2 in the low 600s and then three real contenders in the high 600s. While this is a rather blind way for the buyers to have to bid, it forces you to really depend on your agent to know value in the area, and work hard to give you the inside track on offer night.
There are three principles that I would encourage you to employ on offer night.
Have a deposit check in hand, and make it in the form of a bank draft or certified check, for a minimum of 5% of your offered price.
This allows the sellers to know that you are serious, and financially capable. Faced with two similar offers, sellers will always choose a buyer who is prepared with a certified deposit.
Do your Due Diligence prior to making the offer.
If (and you should) you do a home inspection on a home you are planning to bid on, do it prior to the offer night so that you can offer with a firm (condition free) offer. Having all the relevant data on a home prior to putting in a bid will not only help you win, it will allow you to know what you are getting into when you win the house and become its proud new owner.
In addition, (and this should be done before you even start looking at homes) have your mortgage pre-approval in place and know that you are capable to make an offer without a condition on financing. Note: this will not be possible for all buyers. If you are not in a position to make offers without a financing condition, I would advise my agent of this and focus my search primarily on houses that do not have offer dates or had been on the market for longer then 9 days.
Put your best offer forward with the first offer.
I am sure you have heard the slogan “know your limit and play within it” this is incredibly important with bidding wars. It is a common practice to have listing agents send buyers back to improve their offers. I would encourage you to have your agent make the listing agent name the terms of engagement. Is the agent doing more than one round, will you be expected to improve? Is it best offer takes it? You need to rely on your agent to help you have a strategy to win the home, and by knowing the landscape of the bidding process it will allow your representative to give you the winning strategy. Your agent should also be able to stand behind the number he recommends. With the The Path Real Estate Team, we actually “endorse” our high bid recommendation with a guarantee to sell the house for a 0% listing agent commission if the home must be sold before there is time for the appreciation to make up for the friction costs of trading a home. It is important that your agent put his money where their mouth is. It is also important that you know your limit. If the most you can bid is 800K, then your strategy should reflect this. Do not get caught up in the moment and bid in a fashion that you are unable to support or stretches you too thin.