Bidding wars are for suckers

Bidding wars over real estate are becoming increasingly de rigeur in Metro Vancouver, due to a shortage of single-detached homes. The practice, encouraged by realtors, often by listing a property well below market value, is further driving up already high prices in the city.

Whether such contests are entirely ethical is open to question. Bidders often end up paying far more than they have to in order to win a competition, in large part because they have no idea of how much others are bidding… or even if others are truly bidding at all. Sometimes, buyers overbid at the mere suggestion of a bidding war, even though they are submitting the lone offer.

Although it isn’t difficult to understand why realtors and sellers might want to promote bidding wars, such competitions obviously don’t work in favour of buyers, and can cause homebuyers to take on more debt than they can afford.

To prevent such issues, the Real Estate Council of Ontario (RECO) recently made it illegal for realtors to discuss other offers with potential buyers unless they could back up those claims with a submitted formal written bid. By keeping all bids on file for a certain amount of time, Ontario brokerage firms will be able to show evidence of offers and provide transparency for the buyer.

B.C. homebuyers are not protected in the same manner. The Real Estate Council of BC (RECBC) said no plans for a similar safeguard are being considered in the province. It is the RECBC’s position that bidding wars – and imaginary bidders – are not a real problem in the province. In fact, if sellers so wished, they could choose to auction their property, which could also work to the detriment of homebuyers.

Buyers should beware. Those seeking to purchase a home might do best to avoid bidding wars altogether. Bottom line: bidding wars are for suckers who get caught up in feeling that they must win a home at all costs and are happy to pay a higher price than a property is worth.

Always keep your budget ceiling in mind. Otherwise, you may be taking a large gamble with the largest purchase you will ever make.