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Avoid Housing Bidding Wars

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MusingMoney keyed me in on this little story about how two different home selling strategies yielded two different results and is the topic of the third chapter of my Home Buying Autopsy. When you go to buy a house, keep your eye on the prize and your hand on your wallet. This is the same as when you’re buying your next trinket on Ebay, always avoid a bidding war – the seller’s best friend.

In the story, one seller listed a $400k home at $450k while their neighbors listed it at $395k. The $395k yielded more foot traffic and eventually created a bidding war with the sale price resting at $425k. The $400k languished and eventually sold for $410k. Moral? Bidding wars only benefit the seller.

I almost fell prey to this twice in my home buying process. At the time, and even now, the housing market in the Baltimore-Washington area is piping hot as supply has yet to catch up with demand. I had always planned to spend between $250k and $300k for a home, that’s all my wallet could bear. When the time came to put down an offer on a home listed at $290k, I submitted an offer for $290k with an escalation up to $300k, my limit. The seller countered and I escalated up to $310k, a full ten thousand bucks over my limit! I was in a bidding war! The seller came back and said that the other offer was for more but by then my girlfriend had talked some sense into me and I backed out.

The second time was in the house I ultimately purchased. Listed at $270k, (a lowball listing to generate foot traffic into the house, comparables were selling for $300+ in the area) we offered $280k with an escalation up to $295k. The seller’s agent told us the competition had $350k in cash and she wanted to know if we wanted to increase our offer. The key point we used was the knowledge that the seller’s wanted to stay another two months, something competition wasn’t willing to agree to (and probably why the price was lower). I was tempted (briefly) to jack up our offer but thought better of it… turns out that the other buyer offered $330k! The biggest mistake their agent made was telling me I had no chance.

Therefore, the next time you’re buying something, including a house, remember not to go beyond your preset limits for the sake of winning. There is an infinite supply of homes and with time and diligence; you will find the right one in the right price range. There is no such thing as a perfect house if it will cost you more than you want to spend.

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3 Responses to “Avoid Housing Bidding Wars”

  1. pfadvice says:

    So true. As an ebay seller, I love bidding wars (it increased my net worth;), but they are anything but financially sound when you’re a participant. Set your price and be patient. In most cases yuo will eventually get what you want at the price you had alloted.

  2. Empty Spaces says:

    Thats absolutely correct. Also, if someone offers you full price, you can always counter back. its worked for me!!!

  3. John says:

    If you don’t play the game you don’t get the prize. Ask anyone today about any dealings 10, 20 or 30 years ago, whether they feel better about bidding low and not winning the bid. History shows the person who got the property can sell their property for multiples of what they paid for it. Housing has alway been the consistent winner out of all investments. You can’t say that about stocks since a stock can easily go down to zero. Even if the property falls in a down market, it goes up again. People who look like losers will smell like a rose when the next upturn occurs. Pick any peak in the past and it will look cheap in today’s market, and this is in every location in the USA.


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