We are getting into that time of the year when activity in the real estate market can get a bit feverish. Some people would offer $10,000 more to the same home they saw in January if they see it again in the spring. What a few tulips and neat front yard can do to our perception! It becomes even more interesting when the real estate agent says: ”The other agent just told me that he has received three other offers”… That only is enough to trigger a whole new set of emotions. The main one is – “I love that home, I hate to lose it over a few thousand dollars”. And that is how things start to roll into one direction only – overpaying.
Bidding wars come and go (depending on the health of the market). They resemble the go-go era of the late 90s when dot.com companies were all the rage in the stock market. It was normal to see their stock value going up and down by 20% within a day or even hours. Nobody had an explanation, but everyone participated in the game. You know the final result.
When you think about it, paying more than what the seller asks means:
- The seller does not know the real value of his home
- The representing real estate agent did a sloppy job when establishing the asking price
- The bidding buyers know something that makes the home more valuable and willing to pay more.
What is it? A hidden treasure box in the attic?
How a bidder would justify his action? Just because the other guy is prepared to pay $10,000 more, do you have to follow? The idea that neither the owner nor the agents now the market as well as the buyers is rather thin. Bidding wars make little sense to a well reasoning mind.
Yes, sometimes bidding wars are orchestrated by the seller, the agent and other interested parties to inflate the purchase price and profit. Needless to say, such a practice is illegal. But if you find yourself in the midst of a bidding war over a real estate property, at least know what can help you become the winner. Mark Weisleder has written some tips for The Star. While all of them are good and represent common sense, I like the most the last advice:
If you are suspicious about whether there is a competing offer, consider inserting a clause that states that if the seller does not receive another offer, you will have the option to either cancel or revise yours. You can also include a requirement that if the seller accepts your offer, they will provide the name of the competing real estate brokerage that submitted the other offer.
I always try to discourage my clients from falling into the trap of a bidding war. By just saying “no” to bidding wars makes you already a winner.