A few years ago creative realtors discovered they could get more money for sellers, lower their costs and increase profit by initiating bidding wars on a listing.
Here’s how it works:
The realtor will list the house at a lower than normal price and stipulate that offers won’t be accepted until seven to 10 days after the listing date. The lower price will create more interest than normal. Interested buyers then will submit their offers, usually at more than the asking price.
Depending on the popularity of the listing, the selling price could be much higher than the listed price.
Bidding wars increase the average selling price. Although many would assume the highest bid would be accepted, a disturbing trend reveals this is not always the case.
Offers that do not have the condition “subject to home inspection” are being considered over higher bids with the condition included.
In other cases, a potential buyer asks if they can have a home inspector go through the home before they submit their offer. Often the seller is reluctant or limits the amount of time they will allow the inspector to be in their home. They know a bidding war will likely result in offers that don’t include a home inspection. Why would they agree to allow a potential buyer to bring in an inspector who may find things that may hinder the sale or cause them to have to take less money due to negotiating over the cost of repairs?
The other implication is that home prices are being artificially inflated. If the market cools, some buyers may end up in a financial crisis if they have to sell their house for less than they paid because of relocation or some other reason. In addition, if the market slows, new buyers will not be faced with a bidding war and can therefore take their time and hire a home inspector who finds items that need repair which in turn may cause a homeowner to take less than their asking price.
The bottom line is, although bidding wars are great if you’re selling your home, everyone should be aware and concerned about the negative ramifications.
Having a thorough home inspection performed by a qualified home inspector should be done before you finalize an offer to purchase. If that’s not possible, the buyer should have an inspection done after they take possession so they will find out what needs to be repaired or replaced and the estimated costs.