All the talk surrounding Canada’s housing market is about how prices are set to drop. No, they’re not going to plummet but yes, a drop is coming – and that’s generally great news for buyers who are looking to pay as little as possible. But if buyers aren’t careful, a drop in prices could mean that they’re actually going to be paying more for those properties. Because a reduction in prices means an increase in buyers searching the market – and that can quickly lead to a bidding war.
Many buyers think that they’re in no danger of getting stuck in a bidding war. They know the amount they can afford, they know the budget they’re going in with, and they’re going to find a home within it. This kind of thinking is ideal, but often turns out to be nothing more than good intentions that have paved the road to a home purchase that buyers simply can’t afford. The problem is that they start searching homes that are in their budget, and find a home that they absolutely love. Everything seems on track with the good intentions so far. But what those lucky buyers don’t know is that there’s another buyer that loves the home just as much – and is willing to pay more for it. That’s when they find themselves in the bidding war they never thought they’d be a part of.
The real estate agent submits their Offer to Purchase, and comes back with a counter-offer because another buyer has offered more. At first, the sales price might only jump $5,000 – before it climbs another $5,000 and then another $5,000. The first jump in price might not make that much of a difference in the monthly mortgage payments, but when the seller keeps tacking on more and more, those affordable payments quickly start climbing and soon, buyers are left with a home they can’t afford. That is if they participate in the bidding war. But they don’t have to; they can walk away.
The key is knowing what you can afford, and not going over that amount no matter how much other buyers are willing to pay. That is how the road of good intentions begins, but all too often buyers get derailed along the way. To prevent that from happening, buyers should speak to a mortgage broker first to find out how much home they can afford; and then speak to their real estate agent to let them know what that amount is – and how important it is that they don’t go over it.
Walking away from a home isn’t the end of the world and if it starts going over budget, buyers should look at is as though they have no choice but to walk away. Better to spend some more time hunting for the perfectly affordable home, then spend the next 20+ years with a mortgage they can’t afford.
