Bidding wars, for beginners

Bidding wars, for beginners

By Rona Fischman

The national seller’s market doesn’t mean a thing to buyers who have been picking through leftovers for the past four months. To the buyers who I saw swarming open houses, I say “Just Say ‘No’ to Bidding Wars.” 
Or if you are saying ‘yes,’ to a bidding war, know what you are doing.

I am fairly cynical and often wonder how many bidding wars have phantom offers or are just dud bidding wars. (One agent was bragging that 85 parties came through last week. It was aimed to scare my buyer into an offer. What I hear is that 85 parties rejected the place at that price last week.)

So, how do we respond to a hurry-up?

Since there is no way to know if the offers on the table are viable, or if the offers expected are going to show up, as a buyer, you need to make some decisions. I look at these things to determine what advice I will give to the buyer who wants a “hurry-up special”:

  1. Sale time on similar properties early last spring.
  2. The price of this property compared to similar properties sold last spring and since then.
  3. My perception of the number of buyers who saw it and what they were thinking. (If it is open at an open house, I watch the expression of the other buyers.)

Asking prices can be way over or somewhat under what the house is worth, based on a Comparative Market Study. But first, consider that asking price is an awful measure of whether a buyer is getting a good deal. I contend that asking price is a fiction created by the seller or the seller’s agent or both that reflects the wishful thinking of the seller or the seller’s agent, or both.

For a seller or listing agent to identify a price that is compelling for a buyer is both science and art. It is not so easy to find a price that will make a number of buyers jump. The masters and mistresses of the bidding war do just that. The ones who do it well are very good at Comparative Market Analysis (CMA.) It’s done by looking at the properties that are most like the one for sale, the “target.” The like-kind properties’ prices are then adjusted so one can compare apples with apples, by deducting value from the target for things that are worse and adding value to the target for things that are better.

Once they establish a market price, they list the house at or just below the market value, where they expect a number of buyers will respond. The risks: if the price is too high, no war; if the demand is lower than expected, it is hard to bring the price up again (although some do it.)

For our clients, we do the CMA on the buyer’s side to help them establish the point where they could be overpaying for the house. By knowing the walk-away point, a buyer can go into a bidding war without losing his/her/their head. The most important thing for a buyer to do is to keep a perspective. If the property is unique (special architecture or special location) there is more reason to go into a bidding war. If the property is typical for the area, consider sitting out the madness.

 

By | 2016-12-28T14:01:16+00:00 March 27th, 2012|Categories: House Hunting, Negotiating|

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