I’ve had many clients of late be disgruntled when they find out that the are not the only ones interested in buying a house. While it’s not something that I as your agent am able to control, nor can I predict what price the other buyer may offer, I can guide you through the process given all of my experience.
The pros and cons of a bidding war:
We often see homes listed for sale that have a great price. My experience dictates that this usually means that there will be multiple offers, which in effect creates a mini-auction where buyers will be willing to pay more than the offer price. In the DMV, offers in multiple offer situations are generally presented in one of two ways. The most common way is via an Escalation Clause, in which each buyer submits an offer with a price, and then a secondary pricing scheme in which they essentially say that they would be willing to surpass any other offer by $X, up to a maximum of $Y. What this means is that if another buyer is willing to pay over the asking price but less than the first buyer, the first buyer would pay $X amount more than the second buyer.
The other methodology is by the listing agent requesting Best and Final Offer. Here the buyer has to make up their mind how much the property is worth to them, and offer that amount.
I always advise buyers that they must decide on a dollar amount above which they would be happy they did not pay. If they choose a number under that dollar amount, they may come to regret it, and often will say “I would have paid that much!” By then, though, it is of course too late. Many first time buyers writing their first offer have this experience, and end up being more aggressive on their second offer.
Conversely, there is a risk to sellers in such a mini-auction situation. Buyers may feel that they are being played, that the seller or listing agent is just saying there are multiple offers in order to drive up the price, or that it’s unfair that they are submitting a price higher than asking without having any knowledge of the other offer.
They are not wrong – just like if you were at an antique auction and you found the perfect piece, you would pay less if there was no one else in the audience who also wants the piece. However, the second there are more than one interested parties, the price ends up increasing. In that case, much like in a multiple-offer situation in real estate, each buyer has no idea what amount the other is willing to go up to, but needs to have a strategy to back away when they feel it is not worth it to them any more.