As vacancy rates remain tight and the woes of apartment hunters continue to make headlines, there’s a strategy that’s making its way into the rental market: Bidding wars. Yes, it’s come to that. While there is a listed rent, like real estate bidding wars, don’t necessarily expect to pay that price – especially if you’ve found the perfect apartment and are determined to live there.
Bidding wars may seem crazy – nobody wants to pay more than the list price. The unfair aspects of a bidding war is that it favours the wealthier person. Housing is an essential need, and over the past few years market rent has been on the rise. Most renters search with budget as one of the top factors of their selections. With market rent reaching budget-busting levels, bidding wars can have the effect of pushing people out of their comfort level of affordability in order to secure an apartment.
On the other hand, bidding wars also flush out actual market value.
There is no simple formula to put a price on rental units. Nothing that works price, square footage, location and amenities into an easy-to-figure equation.
As you search the market, trends start to emerge – different areas of the city can be more expensive depending on desirability; renting a new, luxury condo versus an older purpose-built apartment unit comes at a premium. It becomes hard to compare market values within a city since there are so many variables.
And that’s where bidding wars start to play into the transaction.”Competition for decent rentals has skyrocketed,” says Yan Gurevich, sales representative at Harvey Kalles Real Estate, in Toronto. When demand is high, vacancy rates are low and people become aggressive at securing an apartment. One tactic is to offer to pay more rent in order to appeal to the landlord.
“Because it’s harder to qualify for mortgages for new buyers who used to qualify with more ease,” says Gurevich, “tenants seem to remain in their rentals longer. Good rentals aren’t turning over with as much regularity. Tenants aren’t becoming buyers as regularly as they used to. So we do encourage our rental clients to bid higher or settle for significantly lesser quality properties for similar lease rates.”
Market value is always set at whatever the market will bear
Some agents are proactive, asking their clients to decide on the top price they’d be willing to pay for the apartment they want. Knowing other offers are coming, the agent will offer the landlord higher rent with the application.
Like a bully offer on a house for sale, many prospective renters go in with their best offer first. They don’t wait to see what the other people are doing, they simply decide what they’re comfortable paying, and make an offer.
Other times, it can feel more like an auction. The landlord will get one applicant offering to pay more, and invite other interested parties to counter offer until the highest bid is accepted. Again, the person who can afford the most will win – really hurting the principle of affordable housing – but at the same time, it flushes out what the true market value of that property is.
When the rental market was slow, there were often opportunities to bargain the landlord down a bit in price, though usually you’d expect to pay the asking price. Now, though, that mentality has changed a lot. With a very active market there is fierce competition.
The national average vacancy rate is sitting at 3.4 per cent, according to the Canadian Mortgage and Housing Corporation (CMHC) statistics from the last Rental Market Report. However, several of Canada’s largest urban centres have a much lower vacancy rate. British Columbia sits at 1.3 per cent, Manitoba at 2.8 per cent, Ontario at 2.1 per cent. Getting further granular, Toronto’s vacancy rate is only 1.3 per cent and Vancouver’s vacancy rate is 0.7 per cent, and that’s very, very tight. The result is, anxious renters being willing to settle for less, pay more and compromise on their needs in order to secure an apartment that meets their needs.