Secret Bidding Wars - Who Benefits? [Not You]

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by Osman Parvez
What happens when you list a property for sale so desirable (or under-priced) that several offers are made at once?    It's probably not what you think.

Who Is The Biggest Loser?
Trust me, I've seen this movie and I know how it ends.   Here in Boulder, listing agents who find themselves in an auction scenario almost always focus on the best offer on the table and ignore the others.   If the listing agent is a good negotiator, they'll counter the best offer only but sadly, that's NOT how to maximize value for the seller.  

When listing agents only negotiate with the best offer, bidders who didn't get a counter are left wondering what happened. The buyers will eventually find another house.   The biggest loser is actually the seller because they won't know how high the other buyers were willing to go.   It's very likely they left money on the table.

Judging by the reaction of listing agents, most auctions in Boulder are unexpected.  Planned auctions are rare (445 Christmas Tree Lane for $1.65MM is an exception).  After participating in dozens of badly managed auctions, I'm reaching the conclusion that many listing agents simply don't know how to handle an auction scenario.  

Offer Rejected!  No Opportunity to Participate....

I'm no longer surprised when unexpected auctions are bungled.   Upon learning of multiple incoming offers, I recently had one listing agent tell me that they were only going to negotiate with the first offer received.     "The first offer, are you sure?" I asked.  She said she was sure.   So I spent that Friday night in a mad-dash to prepare and submit an offer.  The listing agent called me the next day to sheepishly let me know they were actually going to wait until Sunday to receive all offers.    I politely thanked her and hung up before emitting colorful profanity that my mother would definitely not approve of.   After closing, she admitted she was surprised to find a bidding war for the property and wasn't sure how to handle it. 

Margaret, if you're reading this... you still owe me a drink.  Transparent Auctions Serve Everyone An auction where competing offers are visible to the participants is the best way to drive up the selling price.  There's a reason that old school auction houses like Christie and Sotheby, not to mention eBay make the bid price public.    Auctions create a buzz and if run properly, maximize the selling price.     They also inform would-be buyers of market conditions, helping them make better informed decisions on valuation.  Keep in mind that the listing agent (and seller) are not under an obligation to keep offers confidential.   Heck, I could probably publish them on this blog if I wanted to do so.    I'd mask the names of the bidders and their agents, but that would be more from a place of common-sense and a desire to protect bidder privacy, not a legal obligation.  So why don't agents disclose the terms of other offers?   What's the deal?    Are listings agents afraid of Negotiauctions?   Whose interests are being served by keeping the other offers secret?      Take a guess...

Choose from the following likely answers; 
(a) the listing agent doesn't know how to run an auction (incompetent) 
(b) the listing agent has a conflict of interest (i.e. will double-end the deal) 
(c) the listing agent is doling out preferential treatment to certain bidders (i.e. drinking buddies).

The truth?   It doesn't matter whether the answer is (a), (b), or (c).   If listing agents find themselves in an auction, they should invite other players into the sandbox.    Rejecting offers without providing an opportunity to participate is a disservice to their clients and to the market in general. 

Auctions Aren't Always Bad News for Buyers
A transparent auction increases trust in the process and knowledge of market conditions.    A well crafted offer can also come in well under our estimate of intrinsic value.    In the earlier example, where the listing agent bungled her way through the process, we still won out.    The buyer also remains a personal friend and likely future investor. 

Right now, representing buyers, I'm batting about 75%  for winning auctions without exceeding my buyer's ceiling threshold.   There are several tactics that Dallice and I employ to increase the strength of the offer without necessarily increasing the bid price.  In a recent deal, we even won-out when the other bidder was represented by the listing agent (double-ended).    That deal is headed to closing....

Want to learn more?   Call me at 303.746.6896.
--- Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.