How to Handle Bidding Wars

How to Handle Bidding Wars

Bidding wars happen in a couple of different ways, depending on the circumstances. No matter how it happens, though, bidding wars mean that the price of a home is driven higher and higher until it has no basis in reality. In a bidding war, the buyer never wins. What can you do?

Agent-driven bidding wars.

One bidding war that most buyers never hear about is the agent-driven bidding war. Sellers agents want to get listings for a chance at getting commission. If one agent goes in suggesting a realistic asking price based on CMA and neighborhood comps, and another agent goes in with a number $50,000 higher but no basis in reality, some sellers would choose the second agent at the hope of getting the extra money for the house.

In reality, the second agent is screwing up the sale, because no educated buyer is going to pay a price so far over the comps. These types of bidding wars happen because agents want to get the listing, and it’s called ‘buying a listing.’ A house with an artificially inflated asking price is no prize to potential buyers, and you might just have to pass on the home if sellers believe they can get a high price for their house.

Buyer-driven bidding wars.

The other type of bidding war, and the one that’s more common from a buyer standpoint, is when multiple buyers want a house and raise their offering price to compete with the other buyers. In this case, too, the price of the home can become artificially inflated, rising far beyond what a reasonable buyer would pay.

Unfortunately, if you find yourself in the middle of a bidding war like this, it’s a good idea to put aside your emotional attachment and look elsewhere for your dream home. Paying an inflated price puts you in the hole to start, and is a bad way to begin home ownership.

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