Why doesn’t anyone want this house?
That was my friend’s primary concern after putting in an offer on a solid Scarborough bungalow. But her concern — that no one else is bidding on this house — is also the reason why almost 15% of home buyers will overspend on their home purchase.
When a good friend found the house of her dreams this week, she called me immediately. After describing the beautiful old-world wood trim and the generous room sizes she paused and, quite concerned, asked me: “So why, after six days, is this house still on the market? Why aren’t people bidding on this house?”
To be fair, her concern was whether or not there was something wrong with the home (she’d recently pulled out of a deal on a house in a hot area of town after finding major structural issues), but it got me to thinking. Do more and more buyers question whether or not a home is a good buy if there isn’t a bidding war?
The sad truth is home buyers and sellers — in certain markets — have almost become accustomed to bidding wars. In Toronto the magic number in certain hot markets is $399,000. If you see that on a listing you can almost guarantee a bidding war (with some of these homes going for 10% to 14% above that asking price).
But there’s a danger to this mentality — a danger that was illustrated by a Harris/Decima poll (sponsored by BMO) that was released in the spring of 2011. According to the poll, approximately 15% of first time home buyers found themselves in a bidding war. Of those whose bids were rejected, 14% confessed that in the rush to get a home they’d actually overspent on their next offer.
That might be great for the agents (who make their money off a commission associated with the sales price) and the seller, but it’s not great for the home buyer.
It’s also why I tried to quell my friend’s fears. By walking her through the neighbourhood comparables, talking to her about what she loved about the home and then reviewing the inspector’s report, she began to realize that maybe, just maybe, she didn’t need a bidding war to tell her the home was a good buy.