When there are multiple bids on one home, it’s considered a “bidding war.” In a seller’s market, where the supply of homes for sale is less than the demand to purchase them, bidding wars become more common, as buyers compete for properties. Managed correctly, this increased competition should bring you, as a seller, a higher selling price.
In a competitive market, some sellers purposefully list their home to attract multiple bids. To encourage this situation, a specific time and date is set for buyers to submit offers, typically one week after a listing goes live.
Bidding wars normally begin on a weekday. Multiple open houses are hosted to further encourage the hype. After 5–8 days of the listing being live, the sellers request that any and all offers are made on that day only. Buyers submit offers and sellers review each carefully before making a decision. Sometimes when offers are very similar, sellers ask that all potential buyers consider if they would like to make any improvements to their offers. Finally, an offer is accepted and the sellers contact all buyers to disclose their choice.
Tips for sellers
In a competitive market, you want to be sure you get the highest offer possible. Here are a few pointers to keep in mind during the selling process:
- Don’t be greedy. When you’ve received a few offers, it might seem like you can go back to the prospective buyers for more and more. Understand your property’s value and the situation at hand. If you send all buyers back for improvements, there is a risk that some or all do not return. Also, if you have multiple offers at the table, the given offers are usually good indications of the true market value of your property.
- Fix anything that will dissuade buyers. In a seller’s market, your home can be extremely hot or just another house on the block. If there are glaring problems with your home, put the money in to fix them before listing your home. Buyers will appreciate the effort and for many repairs, you’ll see an equal or greater return on the investment. (For a full list, read our article on investing in your home.
- Be fair and honest. At no point can you cover up latent deficienes. It’s also not a good idea to do anything that could discourage potential buyers, like including unrealistic conditions on your sale.
Bidding wars can be complicated, so here are a few terms you should know.
Herewith deposit
In markets where there are more sellers than buyers, called Buyers’ Markets, bidding wars are less common and buyers produce the deposit cheque within 24 hours after their offer is accepted.
In the case of bidding wars, prospective buyers will normally include a deposit with their offer— “herewith”—to show their bid is legitimate and their interest is sincere. When a deposit is produced with the offer, there is no risk to the seller that the buyer will not come up with the funds the next day.
To learn more, read our page on deposits.
Conditions
In offers outside of bidding wars, buyers typically include conditions that allow them time to do due diligence on the property after negotiating an acceptable offer. These include passing a home inspection, dealing with tenants, and fixing any damages, to name a few.
When in a bidding war situation, strong offers are submitted without conditions, to make offers more appealing. The more conditions, the more reasons a seller has to look at another bid.
For example, in a seller’s market, home inspections can be completed before submitting an offer. That way, you know that your buyer has done their due diligence ahead of making a firm offer.
Bully offers
Because you’ve set a specific day to receive offers, any offers received prior to that offer is considered a pre-emptive or bully offer. Buyers may try to beat the competition by submitting an early offer, knowing it has to be good enough to tempt you from a full marketing period on the property.
Pre-emptive offers usually have a short irrevocable time—usually in the four-hour range. These bully offers need to be strong enough that a seller is tempted to take it earlier than offer night, potentially reducing the number of buyers that are prepared to participate in offers. It’s then a guessing game: do you accept the bully offer, assuming you won’t get something better, or do you wait and hope you get that a greater amount on offer day? Ask your agent about bully offers to know what to expect and how to handle them.
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