Competing offers, when more than one buyer is bidding on a house at the same time, can happen in any market. They are extremely rare when the market is slow but can still happen on really unique, desirable properties or on properties that have been underpriced.
When the market is hot, like it is now for most single-family home segments, competing offers can become fairly commonplace.
I’ve often heard from buyers “I don’t want to get into a bidding war” and I thought it was worth commenting on what competing offers really means.
In Alberta, the legislation allows for two kinds of offer scenarios – blind bidding or auctions. The odd property does come on the market for auction – this is often for luxury homes and estates. But for 99% of competing offer situations, all buyers will be bidding blind i.e. not knowing what the other bids are.
Standard practice in Calgary real estate is that the first person offering on a house makes an offer the way they normally would. Then if a second party offers, that party will already know they are competing and will put their best foot forward. The first party is then advised that they are in competing offers and are given a chance to resubmit their offer with any desired changes (usually an increase in price). Neither party knows any details about the other offer, including price, possession, conditions, etc.
Competing offers will often happen in the first 1-3 days on the market and it shows that there is strong buyer demand for that property and/or that the property was underpriced. Often, the more offers there are, the higher the house sells above asking price. If a house gets competing offers in the first 1-3 days, it will almost always sell above asking price.
At times, a seller that feels confident they will get competing offers posts a date and time that offers will be presented. In this case, all buyers know they are competing and go in with their strongest bid. However, I have seen this backfire on some sellers this year. They price the house a bit low, expect multiple offers and none come in and then they are stuck receiving offers below their asking price later down the road.
I’ve had buyers ask why they don’t get to know what the other bids are, as they feel it would be a more fair process. The process in Alberta is designed to try and have buyers make their own independent, thoughtful assessment of how much they are willing to pay for a house, rather than emotionally wanting to beat out other bidders in real time, as you do in an auction.
In either scenario, buyers can be emotionally driven and want to “win”. But, at the end of the day, no one is forcing any buyer to put something on paper that they don’t want to sign off on. This is why I feel the term “bidding war” is misleading. Instead, it is simply a number of buyers putting their best foot forward and the seller deciding which one they want to accept; the seller is not pitting buyers against one another.
In 99% of cases, the seller will accept the highest price. However, sometimes the price is very similar on two or more offers and then other terms can become very important. How many conditions (financing, inspection, condo docs, etc) and the length of conditions are a big factor, as the seller has to wait for these to be waived before it becomes a firm sale. The deposit amount shows financial stability and good faith. The possession date can make or break a deal. And even inclusions, such as extra appliances or furniture that are being asked for, can make a small difference between similar offers.
I have been on both the buying and selling side of competing offers many times through my 15 years career (including three boom cycles with frequent competing offers) and there are some trends that emerge. However, it is a very individual situation every time. I can make suggestions to help put forward the strongest offer that is still reasonable and achievable for the buyer.
No one likes being in competing offers. It’s a stressful situation for all buyers. Everyone wants to get a good deal and it never feels great to pay above the posted price for something. But when you are educated about what you want, what is available and what is reasonable value in today’s market, you can go into a competing situation feeling more comfortable. You are always looking for a magic number – one that will feel good to you if you get the house and will still feel okay if someone else went higher and you didn’t get it.
For any questions about competing offers, please don’t hesitate to reach out!