Bidding Wars And The Psychology Behind The Hyper-Competitive Toronto Real Estate Market

COVID-19 & Toronto Real Estate, Real Estate

I’m Steve Fudge, and I sell real estate in the City of Toronto, Ontario, Canada.

Welcome to my blog on housing, culture, and design. Today, I want to dig a bit deeper into the psychology of real estate, particularly the blind bidding war process that has been a staple of the Toronto housing market for nearly two decades.

The long-standing mismatch between supply and demand in Toronto has made the blind bidding war a fixture for a generation. However, the pandemic-fuelled super hot real estate market that fired on all cylinders across the country from Summer 2020 through Spring 2021 brought the bidding war process to several locales that have rarely experienced this kind of competition for property, including small Ontario communities where country homes and cottages abound.




How COVID-19 Set The Stage To Amplify Bidding Wars

What is a bidding war? Well, it’s when two or more Buyers submit Agreements of Purchase and Sale (or to lease) for consideration at the same time for a property.  If the Seller so chooses, the parties are given the opportunity to revise and improve their offers (whether that includes changing the terms or the offering price) one or more times in an effort to secure the property in competition against the other bidders.

Why did the intensity and frequency of bidding wars increase? To the surprise of many, including the Canada Mortgage & Housing Corporation (CMHC), the arrival of the COVID-19 pandemic prompted many Canadians to address their housing wishes, wants, and needs sooner than later, either by relocating their principal residence to another dwelling (and entirely different location) or purchasing a second residence (either a cottage or country home) outside the city. As reported by the CBC, “according to a Statistics Canada study published in February this year, more than 50,000 Toronto residents had picked up and left by July 2020 (fourteen weeks after lockdown), with a similar migration happening in Montreal and Vancouver, as city dwellers fled for the suburbs and other more sprawling environs”. Zoomer Magazine published a great article called “The Great (New) Migration: How the Pandemic Is Pushing Canadians Out of Big Cities” with the observation that the pandemic accelerated moves many boomers were planning.

This collective migration – particularly involving affluent urbanites relocating beyond their metropolitan areas to smaller communities across the country – spurned bidding wars as demand grew beyond the number of available properties offered for sale. And because the Big City Folk typically have more money (often from the proceeds of the sale of their city residence), and they’re usually familiar with the bidding war process, they had a competitive advantage that allowed them to secure the property purchase against other Buyers, especially the locals. This was recently verified in The Globe and Mail’s “Toronto Buyers Behind Uptick In House Prices Across Ontario” and here’s the tale of our Buyers who decided the time was now to return to Nova Scotia to be with family, so they sold their fixer-upper in Toronto for $1,250,000 and competed against 22 other Buyers – sight unseen – to purchase a turn-key rustic modern family home in a community with a shared beach just twenty minutes outside of Halifax. Listed for $475,000, they locked it down for $650,000. Here’s my post –> Going East: A Toronto Real Estate Exodus To Atlantic Canada.

Big moves were happening within the city at the same time. In my post, Dear Urbaneer: Why Are There Bidding Wars For Toronto Real Estate During The COVID-19 Pandemic, I explored how the COVID-19 lockdown in March 2020 shifted the working environment of many professionals from the corporate office to home, while their kids were relegated to remaining home as well and continuing their education online. This placed new amplified demands on domestic life; within those first eight weeks of lockdown, families crammed into their homes 24/7 began to recognize what wasn’t working for them and all the flaws and inconveniences (space, layout, etc.) became more pronounced. It was these Torontonians who – if they had the financial resources – promptly led the charge climbing the property ladder into a bigger and better dwelling. I discussed this mass movement into larger more expensive dwellings (what I call the new ‘Space Race’) in my piece about Forever Homes.




Incidentally, this spatial squeeze was not limited to families with children. It turned out that, regardless of the size of your residence or your household structure, the new burden of running your entire life within the four walls of your domicile every waking moment prompted a massive real estate boom, where Canadians were buying properties that were larger (both in interior square footage and, for many purchasing freehold dwellings, in lot size), than the residence they were exiting. This shift coincided with the federal government’s decision to drop interest rates to 0.25% who reassured Canadians “it wouldn’t be raising the rate until inflation consistently stays around two percent, forecast for 2023” – The Toronto Star. It also coincided with financially secure households amassing greater savings because the ‘Stay At Home’ lockdown measures had, as a byproduct, reduced discretionary spending. All of these intersecting factors enabled most real estate Buyers to bid higher, place larger down payments on properties, and take on more mortgage debt – all of which fueled the escalation in Canadian real estate prices.

As the Financial Post touted “Small Towns Join The Real Estate Big Leagues As Pandemic Turns Tables On Price Growth” the stats were rather astonishing. For example, “In Kitchener-Waterloo, located some 100 kilometres west of downtown Toronto, home prices grew by 40.3 percent, more than twice the rate for the Greater Toronto Area” while Maclean’s Magazine shared the personal stories and struggles of Canadians navigating the housing market during this time in “Nowhere To Buy




Two Different Strategies: List At Fair Market Value & Wait  OR  List Low To Be Sold Now 

Regardless of a Seller’s motivation for offering their property for sale, when it comes to the fundamentals of selling real estate, the objective is to expose a property for a reasonable period of time to the largest pool of potential purchasers to facilitate a firm and binding sale at the highest dollar sum possible. Generally speaking, there are effectively two ways to accomplish this. First, you can list your dwelling for sale at an asking price that is at or more than its fair market value (based on the recent sales of properties similar to yours) and then wait to see how the market responds. When you take this route, you’re effectively putting your property on the radar of those paying attention, with no certainty of whether you will generate an Offer. As a Seller, you have little control over the timing nor the process (when and how an Offer will be submitted) and if you do receive an Offer, there may be conditions that favour the Buyers, and the price may reflect the Buyer’s intent to negotiate a lower sum. Needless to say, this approach became less attractive during the pandemic, especially in the early days when the ways COVID-19 was transmitted were less understood.

The second option is called the List Low Holdback Approach

where you offer your property for sale on MLS at a sum below market value and include a specific day/time (usually seven days later) on the listing stating you will be receiving offers. While this approach is common, it actually has become more popular and preferred by Sellers during the pandemic because it offers the benefits of efficiency and convenience when operating on a clearly defined and contained timeline of their choosing. Given the required precautionary measures and strict showing protocols necessary to mitigate the virus – which include ensuring no two sets of purchasers view the property at the same time (which often meant viewing appointments could fill an entire 10 hour day back to back with spacing) – Sellers became more comfortable with listing low, setting a holdback date to receive bids, and then either vacating the property during showing times or vacating their property in its entirety for the week by staying in temporary accommodations (frequently depending on their views regarding virus transmission). For anyone weary and wary of COVID-19, this approach was significantly better than listing at a sum above market value, potentially generating the same number of viewings over a longer period of time while living in residence with pandemic stress. Incidentally – and keep this in mind for when you sell your principal residence – but pre-pandemic many of our clients who found the listing and selling process stressful would book a vacation that aligned with the week their property was coming to market, decompress in a location of their choosing, and return refreshed and ready to complete the sale on the Offer date. I consider that the ultimate in self-love.

Not only can the Seller dictate the date/time at which they receive offers based on their schedule using the List Low Holdback Approach, but it also provides the Seller greater control in both the selling process and, frequently, in the terms and conditions of the Agreement of Purchase & Sale contract. For example, we typically post our new listings on MLS on a Tuesday or Wednesday (which provide excellent exposure and align with the work patterns of realtors), stating that offers will be received 7 days later at 1 pm in the afternoon, by email, with the request that the Offer is valid with an irrevocable of 9 pm. Attached to the MLS listing are the Schedules containing the pertinent clauses, inclusions & exclusions; a survey, if available; and any additional information vetted and approved by our Seller or their legal counsel which we request be attached to an Offer; the Sellers’ preferred closing date, and the request for Offers to be accompanied by a bank draft deposit payable to the listing brokerage. We also provide a sales prospectus providing as much information and detail on both the location and the property, and prepare a presale inspection report provided by a credible third party in the interest of full disclosure to provide to co-operating brokers upon request. The objective is to make available as much information as possible so the Buyer has a comprehensive understanding of the property (and we can assist further as required), from which they can then complete their due diligence based on their own needs and requirements. A well-ordered, pragmatic process is not only an equalizer for all bidding parties but also helps ensure the successful execution of your pricing strategy.




The Agreement Of Purchase & Sale Of Your Choosing On The Offer Date – Accompanies The List Low Holdback Approach 

When the List Low Holdback Approach is properly executed, this strategy near guarantees that on the Offer Date, you as the Seller will be able to consider multiple bids. These bids, by virtue of having been written with the knowledge of competition, will likely be free of any Buyer conditions. An offer free of conditions is more attractive to a Seller, and the Buyers will have had the week preceding the offer date to complete all their due diligence including satisfying themselves with any issues, costs, or concerns. They would also have had time to arrange mortgage financing specific to the dwelling, bring in their contractor to quote on any upgrades they may be considering, and/or have their lawyer run a title search to ensure there are no liens, undisclosed encroachments, or open building permits during the week the property was being exposed to the market.

A List Low approach also significantly increases the likelihood that the terms and dates important to the Seller – included on the Schedules attached to the Agreement of Purchase and Sale – will be accepted without any changes. This is because Buyers are reluctant to modify clauses that have been included by a Seller when they’re competing in a bidding war. Conversely, if they were the only party negotiating with the Seller, they would be more inclined to make changes, as well as additions.

Here’s an example. When we have Sellers who are relocating to another province or country, we will insert a clause that states that the property is being sold in ‘as-is where-is’ condition so that our clients can relocate and start the next chapter of their lives with a fresh clean slate. Clearly, a clause like that is in favour of the Seller, and it is less likely to remain untouched if the Buyer is not in competition in a blind bidding war. Similarly, in terms of Inclusions and Exclusions, in a bidding war, a Buyer is not going to jeopardize their chances by requesting the dining room chandelier be included when the Seller has excluded it for its sentimental value. (But they may if they’re the only offer!) The same goes for the preferred closing date, the dollar amount of the deposit, or whether the Buyer even gets the bank draft to accompany their offer despite the request. The actual specificity of the contract negotiations is much easier for the Seller when they’ve employed the List Low Holdback Approach, which can provide tremendous peace of mind!

Incidentally, now would be a good moment to explain that it’s not unusual for the executors of an estate, or the officers of a company assigned to liquidate a property asset, to list a property at or below market value and hold back offers to allow time for prospective buyers to complete their due diligence in advance of submitting a bid. In these situations, the executors or officers are removing themselves from any personal bias or liability and allowing the free market to set value. They’re also more likely to receive offers that retain all of the preferred clauses and have no added conditions in favour of the Buyer.

Otherwise, on the Offer Date, although we request Offers be submitted at 1 pm, it’s not unusual for some to be late, but our objective is to review all the offers and liaise with each realtor after vetting them, providing counsel and guidance on their strengths and weaknesses of the terms and conditions relative to the other bids without disclosing any details, and then inquiring whether their Buyers would like to improve and resubmit. We essentially do this for seven hours until everyone has submitted their final and best bid, at which point we then review each bid with our Seller who can then decide if there is an Offer they would like to work with or accept.

And if you don’t receive an acceptable offer? Let it be said that a Seller is under no obligation to sell their property for any sum when it’s listed for sale, making this a risk-free proposition when engaging a brokerage who agrees to only earn a commission on the successful transfer of title of the subject property.




Reticence Over The List Low Holdback Approach

However, as a Seller, although you may understand how the List Low Holdback Approach works, being comfortable with listing your home for a sum that is lower than its true value can be a lot to wrap your head around. After all, this is your home. And your home represents an enormous financial and emotional value to you. Regardless of the market conditions at the time one is listing, it can be nerve-wracking to start low.

To be more assured with the List Low Holdback Approach, it can help to understand the fundamentals of how the strategy works, but it can also help to understand the psychology of buyers, and some of the behavioural science behind bidding wars, and how they gain their momentum.

Admittedly, it does seem counterintuitive that the lower your list price the likely the sale price will spike higher, but this approach relies on tapping into the psychology of hyper-competitiveness which super-charging this market. Let’s look at some of the psychology and behavioural science principles at play here.




When Winning Is Everything

There is a phenomenon called ‘competitive arousal’ in which a person (or a group of people) abandons the logic of facts in favour of the prospect of winning at all costs. This is something that happens in the corporate landscape all the time with mergers and acquisitions. Before a company merges with or acquires another company, they do in-depth research and valuations as part of their due diligence.

That said, sometimes companies engage in bidding wars to purchase competitors when the financials don’t necessarily make sense on paper. There could be a myriad of reasons for doing so. Perhaps a company wishes to eliminate a competitor. Perhaps they are looking to flex their muscles to grab market share or to demonstrate the depth of their corporate pockets. Or maybe they simply want to win for the sake of winning, which is where this concept of competitive arousal comes into play. Sometimes this works out for the corporate Buyers and sometimes it doesn’t. The Buyer is ready to assume the risk and pay what they perceive it is worth at that moment, regardless of the future value. Conversely, the Seller “wins” because they pocket a higher sum as the result of a bidding war.

Let’s look at a well-known case study of how this competitive arousal works- and in this case, actually backfired on the Buyer.

Back in 2005 Johnson & Johnson was in talks to purchase medical products manufacturer Guidant for $21.5B. Competitor Boston Scientific, not to be outdone, jumped into the ring as well. Eventually, after some back and forth, Boston Scientific secured the deal for $27B, even though it was revealed over the course of the negotiations that Guidant’s financials were in poorer shape than originally thought.

Guidant was also in legal hot water because of problems with the FDA and their warnings about their products and had a litany of legal problems. Their potential value had declined and the risk to the buyer had increased. In theory, the bids should have been going down, based on valuations and likely ROI. This did not deter Boston Scientific, who were willing to pay “what it cost” to secure the deal.

A few months after Boston Scientific took over Guidant, they had to issue a massive recall of some of the Guidant division’s products, resulting in a massive hit to their share price, falling more than 50 percent. By that measure, they did not indeed win the bidding war. And one naturally asks, what compels such behaviour, especially when the facts would have seemed to recommend the opposite course of action?

This article “When Winning Is Everything” outlines the case study through the lens of competitive arousal, in which bidders lose sight of getting a good deal, but instead place value on winning at all costs.  As they state, there are a few consistent factors that contribute to this auction style of bidding – perception of rivalry, hype (i.e. media attention), and time pressure. When you combine these factors, the perception of value shifts as does the initial goal. It’s about winning in the moment – at all costs. And as this case study demonstrates,  when competitive arousal enters the picture, the benefits are heavily weighted towards the Seller.

You can certainly see this happening in real estate, especially when market conditions create the right conditions. With so many Buyers and so few listings in Toronto, there is an ongoing sense of competition and rivalries – creating a fear of missing out with a furious pace. There is media attention galore (Toronto’s real estate market generates headlines on a near-daily basis). And of course, submitting offers in competition is done in a race against the clock, so time pressure. All the factors are there to create that competitive arousal.




Auction Fever!

Everyone loves a great deal, right? The entry price point has a lot to do with the perception of a ‘deal’, regardless of the final purchase price. And this, in theory, is what predicates the bidding wars that ensue in the low list strategy.

One sees this all the time at auctions. Let’s say an item is offered at $50. People feel that is price too high, and don’t bid. So the auctioneer lowers the price for said item to $30; all of a sudden you’ve got multiple people interested, competing with each other for the item. After this back and forth competition, the item sells for $60.

In this case (and in real estate bidding wars) the initial asking price is crucial because it must be low enough to drive people to get involved in the first place. It has to be a sum that compels even those who may not have come to the auction wanting the item but is now seeing the potential benefits that would accompany having it. As the momentum builds, the criteria shifts from “Is this what I want to pay for this item? Does the value resonate with me?” to “I want this now, and will pay whatever it costs – I’m not going to lose out to someone else!”

This fascinating real Estate View article, “The Psychology of Auctions“, explores the phenomenon of wanting something because a number of other people want it too. The enigma that is desirability does not always equate with a realistic value. In fact, it becomes about personal value, what an individual is willing to pay, and the intoxicating nature of competition.



In an auction situation, the Buyer feels an attachment and to a certain extent an entitlement to the item, and the value – psychologically at least – goes up. The monetary value follows suit. This attachment is referred to as the endowment effect. This is a term applied in behavioural science that describes human’s zealous pursuit of possessions. The theory behind the endowment effect was introduced in 1980 by American economist Richard Thaler in this paper “Toward A Positive Theory Of Consumer Choice“. It looks at how consumers assign value towards making purchase choices.

He uses an example of an experiment that they ran with coffee mugs. In a room filled with people, they gave half coffee mugs. They left the rest empty-handed. They asked the mug holders how much they would be willing to sell their mugs for, and what the non-mug holders would be willing to pay. There was a gap between the buy and sell price, with the Seller’s perception of the mug’s value being higher – presumably because of an emotional attachment.

This article by Bob Sullivan – “Why ‘Getting Attached’ Costs You Real Money — The Endowment Effect” – explores the relationship between emotional attachment and value. As this article alludes to, sometimes Sellers can run into hot water by an unwillingness to price their homes as the market is dictating – or perhaps be willing to engage in a List Low Holdback Approach. This hinges largely on that emotional attachment to home and the homeowner’s perception of value.

It’s not surprising to see homebuyers impacted by the endowment effect. After all, housing represents so much and there is such opportunity for that emotional attachment. It’s an investment, but it is also shelter, safety, expression of status, and more. I write about how housing satisfies physical, emotional, and physiological needs in my posts: Maslow’s Hierarchy Of Needs And Toronto Real Estate For Buyers and Maslow’s Hierarchy Of Needs And Toronto Real Estate For Sellers.




The Psychology Of Hyper-Competition In Toronto Real Estate

I’ve seen this happen time and time again in the trenches of the Toronto real estate market – increasingly so during the pandemic. Because people want what others want, the bidding war fuels an indiscriminate need to compete and win (and to avoid losing at all costs). It starts with the list price, in that it has to be for a sum that’s ‘too good to be true’ but within the realm of possibility that it attracts as many Buyers to come through the door and convince them to take a shot at securing the property.

Why? Because in the art of the bidding war, the more parties there are competing for the property prize, the more desirable it becomes. And with it, the less a Buyer has the capacity to analyze or control the process. What’s really critical for the Seller, as I mentioned earlier, is for Buyers to resign themselves to accepting that at no point will there be any negotiation on their part, and that the bidding war has become a contest for Top Dog on who can throw down the highest price, the largest deposit, and meet all the terms requested by the Seller. Again, it’s important to reiterate that while the sale price is a factor, the terms and conditions (if any) play a critical role in the trade of real estate. When I am hired to serve the interests of the Seller, I explain that inciting a bidding war is the optimal means for them to ensure the Agreement of Purchase and Sale contains the terms they want. This also means the closer the list price is to the market value of the property, the fewer offers will be submitted for consideration (a bidding war may not transpire at all) and the likelihood the offers will contain terms and conditions that are not favourable to the Seller.

As counter-intuitive as it seems, the moment the asking price is perceived by Buyers to somehow be positioned relative to the actual market value of the property (whether that be too close to its market value, or exactly ten percent less, such that Buyer can deduce a pattern in pricing), that price will seep into the Buyers’ heads. It will gnaw at their rational, prudent mindset, rendering them unable to split their ego into the hyper-competitive state that stimulates the desire to win the ‘too good to be true’ priced property.

It’s also important that Sellers acknowledge that the List Low Holdback Approach is not new to Toronto. In fact, because bidding wars happen regularly, chances are good that your property will be secured by a Buyer who has already lost one or multiple bidding wars. After all – they’re the ones most savvy to how it works!




Through The Lens Of A Buyer

Chances are – certainly in Toronto – many Buyers who are actively engaged in the pursuit of a property purchase have made several attempts to secure a home already, and that personal experience has shown that the properties they desire sell for sums that exceed their own valuation. What happens is they eventually realize they’ve got to submit offers for amounts that exceed their own educated assessment as a well-informed consumer if they want to be the next Buyer who secures a house.

Furthermore, after witnessing that many bidding wars often result in a precedent-setting price premium that subsequently establishes the baseline for the next similar listing, the Buyer becomes primed and prone to succumb to a state of hyper-competitiveness. There is a desensitization to value that occurs. So how does one determine what a property is worth to a Buyer? As I share in The Four Values Of Real Estate For Bidding Wars And Bully Offers In Any Market Climate, the rational, prudent, and educated Buyer may arrive at the right sum for them based on my equation for a Winning Purchase, which equals the total sum of the following four ‘values’:


1) The rational prudent educated ‘appraised’ value the Buyers and their sales representative have established for the listing by researching and viewing comparable properties,


2) The emotional premium accorded the Buyers because the property really truly absolutely is ‘the one’ (think Prince Charming and Romeo constructed of bricks and mortar),


3) The ‘motivational cost’, which is the sum that reflects a Buyer’s urgency to move. For example, if you’ve sold your existing property and it closes in 30 days leaving you with no place to live, you’re significantly more motivated and likely to offer a larger amount than the Buyer who has yet to sell their existing home. The same goes if you’re a corporate relocation and your family is living in a hotel. Or perhaps you are sleeping on a couch at your in-laws. What ‘premium’ would you pay to change that?


4) The ‘Buyer Fatigue’ value that Buyers add in their frustration to end a long extended search. If you’ve consistently come in second place in a dozen bidding wars over a year(s) long search, at some point you’re going to reach a level of fatigue that will compel you to pony up more cash. Especially as you realize – and have to rationalize – that every sale you’ve lost will still set the market value for the next property like it, even when the market is declining.


So what will their final offering price be? The sum they offer you will likely be the highest amount their lender has pre-approved for their mortgage financing + $1. They will take themselves to the edge, to be done with it.

For those who come out on top in bidding wars, particularly after having lost out successive times (it is not uncommon for a first-time Buyer to lose upwards of ten times in their effort to secure a property purchase), the elation, excitement and sheer relief are overwhelming! And for good reason. For over two decades Toronto real estate prices have continued their upward trajectory (except for a couple of months in 2008 when values stabilized, and some segments of the condominium market impacted by the Covid-19 pandemic), meaning that whatever premium they may have paid to secure the property quickly becomes the price of admission.

The risk? The boom (or bubble as it’s occasionally called) bursts and you are that Buyer who paid top dollar only to see real estate values stabilize or decline for a period of time in the future. Like it did in the late 1980s early 1990s when, yours truly, began his real estate career (stay tuned for a blog about my early days when realtors had numeric pagers, MLS books of listings for sale, fax machines and caravan tours).




If you enjoyed this post, you may find these other posts informative and helpful:

The Psychology Of Real Estate, Housing & Home

Dear Urbaneer: About Holdbacks On Offers, Bully Offers & Bidding Wars For Buyers

Dear Urbaneer: About Holdbacks, Bully Offers, & Bidding Wars For Sellers

Dear Urbaneer: What Are The Benefits Of A Presale Inspection Report For Property Sellers & Buyers?

The Affordability Conundrum For Toronto House Buyers: Livability, Condition & Costs



Are you getting ready to sell your home and have questions about what the smart strategy would be for your property? As a seasoned negotiator, armed with data to drive strategy and decisions, I can guide you towards realizing your real estate goals.

With decades of experience navigating the ever-changing Toronto real estate market, a commitment to promote the sale of properties like yours with interesting and relevant information, and the ability to guide Buyers with credible insights and well-informed guidance, we are here to help without pressure or hassle.

My team and I are here to help!


Please consider our services!


Thanks for reading!


-The Urbaneer Team

Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
Bosley Real Estate Ltd., Brokerage – (416) 322-800


– we’re here to earn your trust, then your business –

Celebrating Twenty-Eight Years As A Top-Producing Toronto Realtor


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