Myth #1 - I am always overpaying when I participate in a bidding war

When I meet buyers, I often hear them say they don't want to see a home if there is a "bidding war" (aka multiple offers)

First of all, what is a "bidding war ... in the Greater Toronto Area (GTA), one marketing strategy is to delay reviewing offers until a future date in time. For instance, a home comes on the market, you see the home today and like it and want to submit an Offer to buy it, but the home has a delayed offer strategy and is not reviewing offers until one week later. The purpose of this strategy is create a bidding war. The Seller wants multiple buyers to bid on the home at the same time.
Whether or not, the successful buyer is overpaying for a home, really depends on the initial asking price. For instance, let's say the home above is asking $599,000 and is reviewing offers in one week. On the Offer review date, the Sellers sells the home for $650,000. Did the buyers overpay? Based on the asking price, the answer is yes, but the right question to be asking is, what is the value of the home (regardless of its asking price). Let me explain, let's say the comparative market analysis (CMA) (which reviews other homes sold recently in the area) shows this home is worth $650,000. If this is the case, then the buyer did not overpay. Some more food for thought, what if the Seller of the same home above was asking $699,000 and sold the home for $650,000, did the Buyer get a deal? Did the Seller under-sell the home? No, the Buyer did not get a deal nor did the Seller under-sell, but the home was sold at fair market value.
As you can see, the asking price and the delayed offer review date (to create a bidding war) is really a marketing strategy to attract interest. In general, the low price attracts more buyers, which is the main purpose of marketing a home ... to attract as many buyers as possible. Further, depending on the market and the area they are searching, if a buyer avoids all bidding war situations, they might not be able to buy any home in a particular area, especially if all the homes use this marketing strategy.



Albert Yu
AlbertYu@GloriaYuHomes.com
Office: 416-494-9858
Location1st.ca

Comments

  1. Good advice, Albert! The initial asking price is an arbitrary number. Every once in a while, a listing will appear for $1. Of course the sold price will be significantly larger than $1! You can bet that it will be advertised as "sold way over asking price".

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    1. Thanks for the comments. The $1.00 listing is a great example that the asking price is just a marketing strategy to attract buyers and as you noted, it can also be a marketing strategy for the agent too, which is a potential future blog post ... marketing a home to sell the home vs marketing a home to sell the agent (most consumers don't know the difference =))

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