Question: We made an offer on a home. The broker representing the sellers said a higher offer had been received and asked if we wanted to raise our bid. We declined, but here’s the question: How do we know there was another bid or that it was higher?
Answer: One of the most difficult issues in real estate involves the question of competing bids.
If you’re an owner, you want multiple bids –- the more the better. Your goal is not only to get the highest dollar amount, but also the offer with the fewer contingencies, considerations and requirements.
Alternatively, if you’re a buyer, the world is different. You want to offer as little as possible. Ideally, you not only want to offer a low price you also want the owner to make certain changes and improvements and even give you a “sellers credit” to assist with closing costs.
You can see where this is going. We have two very competitive parties, a buyer and a seller. But what happens when there is more than one bid?
As a buyer you surely do not want to bid too much and, ideally, you want to see other offers to verify that they exist and contain certain terms. But – and here’s the catch – you do not want your offer “shopped” to another would-be purchaser (and neither does any other bidder).
There are other problems here as well. For instance, the fact that someone made a higher offer does not mean such an offer is reasonable in the context of the current market. A competing bid may well be made by someone who is ultimately unable to complete the transaction –- contracts do fall through for various reasons. Lastly, there is the problem of privacy. As a buyer, do you not expect that your offer will be treated as a confidential document and not shared with others? In fact, you could include a clause to that effect to clarify your view and wishes.
So we have conflicting interests. A buyer would like to see competing bids but no buyer wants their hand exposed.
What to do? There are differing views in real estate, but given the conflicting interests of buyers, sellers and still more buyers the best approach looks like this: Bid what’s right for you, and no more.
That is, if you believe a home has a given value and that certain clauses and conditions are necessary for you to feel an offer will be good, then that is your position. The risk, of course, is that your bid may not be accepted -– and you could lose the property.
Alternatively, you may be involved in a bidding war which will have profound costs for you in the future. The higher purchase price will likely lead to a bigger mortgage and steeper monthly payments — a long-term cost that you may regret.
Syndicated originally by Content That Works and posted with permission.