However as a buyer, it is important to recognize how bidding higher can actually jeopardize your financing. Although a bank will pre-approve you for a certain amount for your mortgage, it can also depend on the appraised value of the property.
For buyers who have less than 20 percent to put down, they need to be insured by an insurer such as Canada Mortgage and Co in order to receive mortgage default insurance. It you do have your twenty percent down payment, it is up to the bank or lending institution whether or not it wants to have an appraisal on the property done.
Generally, appraisers are more conservative in their estimates. Because appraisals look at historical trends and other purchase prices in the area, they can sometimes appraise properties for a good deal lower than the final purchase price.
This is particularly troublesome when it comes to a bidding war. Because you may end up bidding for a higher amount than the asking price and substantially more than the official appraisal, the bank may not lend you the entire amount you’ve bid for.
Basically, buyers need to be very cautious about bidding on properties. Buyers really need to make sure of their financing before setting a bid in stone.
Experts advise anyone in a bidding war to first make sure that their offer is conditional on financing. Should you get caught in a bidding war you may end up having to come up with an extra source of financing. You can also be at risk of losing your deposit should you be unable to go through with the deal.
Overall, even very desirable markets like Kitsilano real estate and Kitsilano homes for sale can fluctuate in their values and sometimes even become overvalued. This is why appraisers tend to take a long term view and try to keep their evaluations realistic.