Bidding Wars. It's the FIFA World Cup of the real estate world. Several teams play in the competition, but there can only be one winner. It can be a crazy game with plot twists and surprises, or it can play out as every one expects. Of course, most transactions do not involve a bidding war. So don't expect one every time you set out to buy or sell a property. Still, 2015 so far is proving to hold many more bidding wars than last year, and in areas that did not have them before.
Up until recently most bidding wars were predominantly found in downtown neighbourhoods in the old city of Toronto (pre-amalgamation), and it pricier parts of North York. Many advanced emerging neighbourhoods draw in quite a few bidding wars when they are well located, well staged, well marketed and well priced properties. Since houses, as opposed to condos, are in low supply in Toronto, that is where most of the bidding wars have been, and will likely remain.
Some neighbourhoods are more prone to them than others. And some price ranges are more prone to bidding wars than others. A property in Leslieville, Roncesvalles, Trinity Bellwood or the Junction Triangle will likely bring in a higher number of bidding wars.
I should be clear that a neighbourhood that has more bidding wars does not necessarily mean the properties are more valuable. It means that some neighbourhoods have a more prevalent culture of bidding wars over others. Some neighbourhoods seem to expect bidding wars. Other neighbourhoods, such a Cabbagetown, you'll find the list price higher, but the difference between list price and sale price to be much smaller than in neighbouring Riverdale. Why is that? Are houses less valuable in Cabbagetown? Well, not at all. Buyers expect a more realistic list price in Cabbagetown than in Riverdale. It's just a different way of doing things.
The bidding war culture is spreading though. I'm seeing it in areas of north of the 401 that did not have them last year. I am hearing about them as far off as Durham Region. I am also seeing a few bidding wars with condos, though this is still much less common than with houses. Bidding wars were much more common ten years ago with condos, but have slowed down with the growing supply. This past year, however, does show that condos are increasing their level of bidding wars. I think it speaks to an increase in the demand for condos, particularly ones that are distinct and well-located.
Bidding wars are also a result of price point. A home for sale for $3,000,000 will draw in fewer buyers than a home for $600,000 (that will net a lot more buyers simply because there are very few people who can afford a $3,000,000 home).
The rise of bidding wars can also be blamed on real estate sales people. Yes, people like me. Some believe that bidding wars are a good way to reveal the best price for a given property. It's almost like a blind auction where the home goes to the highest bidder. It is a strategy that can yield great results for sellers. Of course, some agents price their properties so low that they receive 20 plus offer, which I believe is a waste of time for buyers and their agents. Some agent like to pad their stats. So, if they sell $350K over asking they can be talked about in the Toronto Star or use these stats in their next listing presentation. They can brag that are the reason that their sellers have received hundreds of thousands over the asking price when the reality is that the listing agent has priced the property far too low.
Not all properties that sell well over asking are a result of an agent listing low. Sometimes you can have a change in the market where one house makes a leap ahead of the other. It is the best home put on the market that week, and buyers flock to that particular property. But lets temper our expectations, sellers. To have a competitive house there is a lot at play. Yes, it has to do with location, but also your marketing plan, and how your house is laid out and staged. Not all houses are sold in bidding wars, and that's not a bad thing! Other strategies work too.
Buyers, don't let your ears hang low like a dog because of your fear or disappointment with the bidding war culture. There are strategies to buying as well. If you want to live in a certain neighbourhood, you'll have to be competitive, but if you don't have time, the stomach or the money, there are other ways too.