For many outside of Winnipeg, the idea of "overbidding" on a home seems crazy.  Indeed, in many marketplaces Real Estate values are still very depressed after the fallout in 2008/2009, and bidding wars are highly uncommon.  However, in Winnipeg today, still a little better than 1/3 of all listings in many of the more desirable areas will sell over list price with multiple offers. 

If you're shopping in this market and find yourself competing for a home, the advice in this post could be worth many thousands of dollars to you.

Firstly, something I say to ALL my buyer clients that sets the tone for everything else I have to say:

I would rather see you lose a good deal than win a bad one. 

Think about that for a moment.  It's an important idea.  You see, we don't always have all of the information necessary to make decisions with 100% certainty.  In fact, in a bidding war situation, we can't possibly know everything.  We find ourselves in a situation where we must make smart, logical, and rational decisions based on the data available.  It's my job to help you do that. 

The very first thing I'm going to do for you is do a Comparative Market Analysis (CMA) on the home.  With that, we are going to determine the reasonable value range in the current marketplace based on recent comparable sales and current active listings. Let's assume, for example, that the home you're looking at has a current market valuation of between $256K and $267K based on the information we have available, and it is currently listed at $259,900. With that in mind, we have to determine how high you are going to be willing to go, if necessary, to purchase the home.  On the surface, it may seem like $267K is the magic number, but that may not be enough to win the deal, and it might be playing a bit too conservative for this market.  

In a highly competitive marketplace, sometimes there is a certain amount of speculation necessary.  For instance, if we speculate that the market will continue to rise, as it has consistently for the last 7 or more years, we can make a reasonable assumption of value in the relatively short term future. Given that we've seen increased of at or around 10% for homes in Winnipeg in almost all of the last 7 years (excluding 2009 which was closer to 6% increase), and we take a very conservative estimation of a 6% increase over the next 12 months, we come to the conclusion that the home will likely be worth 3% or more in 6 months.  This is by no means a guarantee, but it's a fairly rational prediction based on very recent history.  Now, if you think of how quickly 6 months will come and go, it's not unreasonable to consider paying today what the home will likely be worth in 6 months, IF it's a home you want and you're in competition with other to buy it.  So based on that, if we were to add 3% TO THE $267K (upper end of value range in our example), you can see that a top end offer of $275K would not be unreasonable. Ideally, you'd like to negotiate lower than that if possible, but many times in a bidding war situation, it's simply not possible.  

The important point to consider is that, no matter what happens, you go into the process knowing where your ceiling is.  Maybe you'll win the deal and maybe you won't.  But one thing is certain... you won't be overpaying sharply for the home.  You'll have made a smart, informed, and rational purchase based on the best information available at the time. 

Photo Credit: Stuart Pilbrow