A while back, we had a front row seat to buyers who made a $100,000 mistake. They were not our buyers. They were buyers who came to a house being sold by one of our clients. Our clients hired a good listing agent, who was recommended by us. When the dust settled, we heard the whole story.

Our clients owned a two-bedroom condo. They expected to spend about $150,000 to trade up into a free-standing house in the same neighborhood. They ended up spending $53,000. They got way more for their condo than was reasonable, about $100,000 more.

What happened in the sale of this condo?

What the listing agent did right:

As is typical of our area, some properties go on and off the market quickly. This two-bedroom condo went on the market. It had open houses and individual showings on the weekend. There was a deadline for offers on Tuesday.

The property was worth a bit more than asking price. The listing agent expected offers at asking, and some above. To get the best price for the seller, the goal is to get a few prospective buyers reaching up over asking. The hope for the seller is that someone wants to win enough to pay more than the property is worth. This tactic works, especially in the hands of an experienced and professional listing agent.

It is not unusual that three offers came in. Two offers were around the same price, a bit over asking price. The third offer was more than $120,000 over asking price. No inspection. No mortgage contingency. The property was worth about $100,000 less than this offer.

The job of the listing agent is to get the seller the best price and terms. The seller accepted that offer. The sellers succeeded beyond what was reasonable to hope for.

What the buyer’s agent did wrong:

That buyer who overpaid got terrible advice. I expect no one showed them accurate comparable sales. Or if they did provide condos that sold in the area, they were likely in the newly built properties (which are worth much more than this 100-year-old building). A competent buyer’s agent would have done a market analysis and given the buyers a fair market value range for this condo. That would have guided them to a better offer.

No one advised them to put in an offer above asking first, then go up in price only if they had to. No. These buyers signed an offer that was more than $120,000 over asking from the beginning of the bidding war.

If I were to imagine what the conversation between the so-called buyer’s agent and the buyers was, it went something like this:

Buyer: “How much do I have to offer to make sure I get this condo?”

So-called buyer’s agent: “You will blow them out of the water if you offer more than $120,000 over asking price, with no contingencies.”

Well, they got the property. But, be careful what you wish for.

A buyer’s agent’s job is to get the best price and terms for the buyer. That means balancing the risk of paying too much against the risk of not getting the property. It can be a delicate balance. The offer these buyers made was way out of balance with their risk of not getting this property. Probably about $100,000 out of balance. They did not need to start $120-something-thousand dollars above asking price.

How to avoid a $100,000 mistake

Hire a good buyer’s agent. That is not just an experienced agent. Hire an experienced agent who focuses on the needs of buyers. The buyer’s agent in this story is an agent on a team of top producers. They are top producers for listings – so they think like seller agents! The sellers of this condo (our clients, with a good seller’s agent) were very happy. I wonder about these buyers.

Demand a market analysis. You must know the fair market value range of a property in order to know how high is too high in a bidding war.

Good luck! Bidding wars are hard. If you hire us, we’ll be there as long as it takes to find you a property for a fair price, with your rights intact.