Wednesday 29 April 2015

Bidding wars are not the parents' fault

There was [an article published in the Toronto Star] not long ago, which suggests that parents may be to blame for bidding wars because they are helping their kids buy homes.

While I sort of understand where the author is coming from, I am not sure it's entirely fair to blame the parents.  Unless they're actually over-riding their child's decision and pushing the deal.

Every generation has something we can blame on them - the younger ones too - but I don't think this is one of them.  If parents bought a car for their adult child, would we blame the parents for any subsequent car accidents they have?  Of course not. 

And we're not talking about high school or college kids here..  if they're out buying a house, they almost have to be young adults starting out on their own.  Part of being an adult is taking ownership of your decisions, negative consequences as well as positive.

Personally, I find the fact that first-time buyers are more willing to enter into bidding wars a source of greater consternation than parents helping with down payments and financing.  A willingness to enter a bidding war is more directly to blame for bidding wars.

And there can be no real argument, bidding wars are good for sellers and not for buyers. So competing offers should be viewed by buyers as the undesirable thing they are, and treated with rational forethought and wisdom, not an emotional response. A fear of losing out can make buyers do some pretty silly stuff, like making over-asking offers with no financing conditions, and ultimately the sellers end up the winners on top of the pile.

[As I've explained before, this can be dangerous even if the price is within your qualification] because the bank may decide that the house is not worth what you're paying.  If that happens, you can find yourself having to try to make up the difference between the appraised value and purchase price or being forced to walk away (risking being sued for breach of contract!).  Even if your parents help you out of this sticky situation, this decision was yours, not theirs.

The solution is simple.  Be patient.  Work with an agent who will give you solid advice on value using actual sale prices from the area.  Stay rational and carefully consider the numbers and your personal plans.  And don't get worked up by competition.  Yes, someone else might jump in with a much higher offer and no conditions, but why should you be that person?

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