Bidding Wars: To Do or Not to Do?
Last month I wrote about how home buyers were becoming wary of getting entangled in bidding wars. This week I came across this excellent article that discusses the pros and cons of creating bidding wars.
It’s starting to become standard practice to under price real estate and then hold all offers for a period of time. The idea is to create a multiple offer situation.
As a homeowner it can be difficult to turn down the practice. I know that when I sold my house a couple of years back we used this strategy on my real estate agent’s advice. We had four different offers ranging from list price with conditions such as inspection to $30,000 over list price with no inspection. As a seller it’s a no brainer, but I still felt bad for the bidders who had invested their time and emotions to put in an offer.
While we didn’t significantly under price the property, at the time I didn’t feel like what we’d done was dishonest or unethical, but many people think that’s exactly what the practice is. Holding off on offers creates an auction mentality that causes bidders to place higher bids. Apparently, it’s not uncommon for potential buyers to entice sellers by sending flowers, chocolates and even videos of their babies.
One Toronto agent described the practice as being the “lazy agent’s way of having to deal with a listing for only seven days,” and thinks that it’s detrimental to both buyers and sellers. Buyers can end up wasting time on a property that wasn’t really in their price range and sellers aren’t guaranteed to make more money.
On the pro side, other agents think that under pricing real estate can work, especially in the kind of market we’re in now – one with a shortage of listings as the tactic could attract buyers who would have thought the property too expensive.
Meanwhile, another agent stated that the point is to get the seller the most money possible.
Where you stand on the issue likely depends upon whether you’re buying or selling. Let me leave you with a quote from the article: “I’ve never had a client say ‘I’m glad I got caught in a bidding war'”.