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Real Estate 101:
What’s the deal with bidding wars?

Real estate, Portland, Oregon

If you’ve had any conversations about buying or selling a house lately, surely the term “bidding war” has come up. We are seeing lots of bidding wars, and the reason for that is low inventory combined with tons of buyers (that old Economics 101 principle of supply and demand). The potential for a bidding war definitely ups the stakes, emotionally and financially, but there is a way to keep a cool head and some things I’d love for clients to know about how to handle them:

What is a bidding war?
First things first — if you haven’t heard about it, a bidding war is a multiple-offer situation. There’s usually a deadline when sellers will review multiple offers, and they’ll be pitted against each other. There are often escalator clauses (which basically say, “We’ll beat any other offer by $1,000 up to $XXX,XXX”) and lots of heated, rushed negotiations. Homes in these situations usually end up selling for above the list price. This usually happens within one or two days of the listing of the house, although they can also follow a price reduction or sale fail.

Keep your game face on
In a bidding war situation, you never completely know how things will shake out. You don’t know who your competition is and you don’t know if they’ll win. Try (I know it’s hard!) to stay unemotional until after you’ve heard. You might need to suck it up and move on.

Make your offer attractive
Sure, there’s the option of upping the price of your offer, but there are other ways to make your offer attractive to a seller. As an agent, I usually call and ask if there’s something important to the seller that we should include — like a shorter closing time, rent-back agreement or not including the appliances. Some of my clients have even written personal letters to the sellers with pictures of their family. In a situation where a seller is surrounded by a bunch of options, never underestimate the power of convenience. You could beat a slightly higher offer if your terms match exactly what they need.

What about buyer’s remorse?
I’ve seen it happen a lot. Buyers get involved in a bidding war, they up their offer price and they wake up the next morning hoping it was a bad dream. The good news for the buyer is, it’s very easy to back out if you want to. That is also bad news for sellers, who might feel like they won the lottery one day, and the next day find out they’ve lost their top-dollar seller and will have to accept another offer closer to asking price. For the sellers in that situation, I refer you back to my first advice — keep your game face on. A deal isn’t a deal until it’s all tied up and signed, which can take 4-6 weeks.

What if I don’t get involved in a bidding war?
Another reaction I commonly get is disappointment when a bidding war doesn’t break out. Sellers will think, did we do something wrong? And buyers will think, did I pay too much? The truth is, not even close to every house on the market ends up in a bidding war. In fact, many agents purposely price houses slightly lower than their fair market value in order to encourage bidding wars, so just the act of pricing a house at its fair market value lowers your chances of a fight. The bottom line? If you’re not involved in a bidding war, thank your lucky stars — they can be tough on the emotions and the pocketbook.

This is a Real Estate 101 post, covering basics about the way the real estate process works. Confused about something? E-mail me at [email protected] and your question might appear here as a future installment.

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