The following article is from Canadian Real Estate Wealth Magazine.
Whether you are a first time buyer, looking for a bigger home, or downsizing, investing in real estate is a smart decision – but only if you do it wisely. Bidding wars, unfortunately, may be here to stay so here’s some advice that may help you to secure your next property.
1. Crunch the numbers
One of the most important elements in the process of buying a home, particularly if you enter a bidding war, is getting preapproved by your bank or mortgage company so you know exactly what you can carry – and how high you can go in your offer.
It seems that the list price of a property is becoming less significant as buyers are shifting their focus to the monthly carrying costs instead. People are definitely willing to pay up to 20 per cent more for a home because the monthly payments only go up marginally, but this can be a huge problem because people are overlooking the huge sums they are paying over the asking price if they find themselves in a bidding war situation.
So, before you leap into bidding war thinking you’re only paying an extra $85 a month on your mortgage, number crunch everything from groceries to your gym membership to make sure you can afford it. You may find that going up only $85 a month might be more of a stretch over the term of your mortgage, especially when interest rates go up and you’re in a variable rate situation. Don’t cheat yourself out of your expenses just to look better on paper.
2. Prepare and do the legwork
Buying a property is the most expensive financial decision most people will ever make in their lifetime so spending time to research the neighbourhood is so critical.
There is so much emphasis on house inspections, and there should be, but the same amount of care should also be spent checking out local schools, transportation links, parks, crime rates, medical offices, family activities, seniors programs, daycares and even future housing developments.
Before you bid, be sure you know what you are getting yourself into and if it’s worth going over the asking price. If you’re looking for a great school for your children – great, but if you’re empty nesters, you might consider another home to avoid paying a premium for access to a school that you really don’t need.
3. Timing is everything
I try to get into properties on a Wednesday so I can put in an offer on Thursday and avoid the weekend open house competition – or before they are on MLS. It’s a strategy that has really worked well for me and luckily, I’m in the fortunate position where I can do a fairly extensive house inspection when I first visit the property. I’ll spend two hours looking at a place on my first visit and if I’m unsure about anything, I’ll bring in an expert.
By beating out the weekend competition, I might not have to enter into a bidding war. There’s no law that states that you can’t make an offer before the official offer date and it really bothers me that agents hold off on offers to create a bidding war situation. I’m all for putting in a good, clean offer ahead of the game. Be prepared to take a half-day off work or call in sick to go and check out properties before everyone else gets to them on Saturday and once they hit MLS. A good agent should send you properties as soon as they are available and preferably before they go public.
4. Real estate agent 101
Having an agent who has your best interest in mind is key to winning a bidding war. Your job as a buyer is not to seal the deal, it’s your agent’s job and they need to know what your limit it is – and respect it.