The Bidding War: When Winning Feels Like Losing
This post was inspired by J. Philip Faranda’s recent featured post, entitled “Keep Your Word or Lose the Deal,” in which he describes a deal where a cash buyer barged in with a better offer (my words not his) on a not-yet-sealed deal only to waffle down the line. As real estate professional, I see that type of scenario a lot when things get competitive, and it made me reflect on bidding wars generally. Personally, I think something has to be unique about a property to be worth enduring the experience of a bidding war. Unfortunately, in my market, bidding wars break out more so due to availability rather than a property truly being unique.
Before we enter into a bidding war, I always make sure to ask my 
client whether they have considered how it will feel to know they paid more than anyone else would pay for a particular property. Even though the question is fairly obvious, it does tend to give a buyer a hint of what it feels like to “win” a bidding war. People often get caught up in the moment or the spirit of competition – especially naturally competitive people. However, in a bidding war, part of the prize you receive is a larger price tag. Often buyers concentrate on the thrill of beating out 10 other people for a prime piece of property. But, when that feeling wears off, some buyers may end up wondering – what did I win? The right to pay more than everyone else? So, unless they are 100% certain about the property and the price – winning a bidding war can feel a lot like losing.
When appropriate, I use escalation clauses in bidding war situations with great success. The client wins the bid and has the assurance that although they paid more than anyone else would, they did not pay any more than they had to obtain the property. The seller receives the highest offer and a deal that will likely stick. I have had listing agents bristle or attempt to ignore my escalation clauses due to ignorance or inexperience. I suppose they would prefer my client take a wild stab in the dark and then walk out on their bloated bid down the line? Yes, that’s a better plan I suppose. However, experienced agents understand that an escalation clause is an excellent tool in a bidding war – it is precise and to the point.
Why use a chainsaw when a scalpel will do?
Tni LeBlanc is an independent Real Estate Broker, Attorney,Short Sale Agent, Certified HAFA Specialist (CHS), and Certified Distressed Property Expert (CDPE) serving the Santa Maria, Orcutt and Five Cities area of the Central Coast of California.
* Nothing in this article is intended to solicit listings currently under contract with another broker. This article offers no legal or tax advice and is for information purposes only.
Copyright © 2011 Tni LeBlanc *The Bidding War: When Winning Feels Like Losing*
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