You know there are agents out there thinking, “Jim, you sniveling little baby – why don’t you just get your buyers to offer more money so they can win the bidding war?”
First off, a bidding war is when participants are bidding against each other.
What is practiced around here is blind bidding, where buyers just guess at what offer might win.
Nobody wants to pay more than they have to, or more than they should. With no other influence, buyers will submit their bid based on the comps, or their comfort level.
But when presented with a price to beat, emotion takes over. With the fear of losing the property being a real possibility, buyers are much more likely to go higher than they originally thought, in order to win.
It becomes more about winning and losing, than paying a comfortable price.
There will be an occasional blind bid that swamps the boat, and produces a sales price that others wouldn’t have touched. But how do you know? You don’t.
Conducting an auction-like process where bidders are pitted against each other and know the number they have to beat is the most reliable way to reach top dollar. The fear of loss is real, and motivates people to do things they wouldn’t have done on their own.
Yet, realtors around here won’t consider! Why not?
Most everyone thinks it’s against the rules, but this is in the contract:
Offers not necessarily confidential: Buyer is advised that seller or listing agent may disclose the existence, terms, or conditions of buyer’s offer unless all parties and their agent have signed a written confidentiality agreement. Whether any such information is actually disclosed depends on many factors, such as current market conditions, the prevailing practice in the real estate community, the listing agent’s marketing strategy and the instructions of the seller.
Agents can include the confidentiality agreement but it doesn’t mean anything unless all parties agree.
In my bidding war on Saturday, the agents were happy to participate. They enjoyed the transparency, and the chance for their buyers to determine their own fate!
How about putting in an offer that states your buyer will pay 10k, 25k, 50k(!) over any competing offer? I had to google it, I believe it’s called an escalation clause? Thoughts on this type of offer? How do you make sure the competing offers are legitimate? Thanks as always for your insight.
The escalation clause is a popular option and it makes the buyer-agent look like a genius to their buyers. The dim-witted listing agents that accept an offer with escalation clause without thinking about the repercussions are leaving money on the table too:
1. The other bidders would likely pay the same amount.
2. The other bidders might pay more.
Taking an escalation clause does get the seller a couple of extra bucks but it isn’t a fair way to determine the winner or be assured that the seller didn’t leave money on the table.
Here are other blog posts: