Too Weak to Defend Part 6 – Bidding War

It was still early 2009. We already had two houses under contract and I could sense that the market was starting to heat up. People were coming to the same conclusion; this is a good time to buy. Interest rates were rock bottom. The first home buyers grant was in full swing. Rents were skyrocketing. House affordability hadn’t been this good in a long time and a lot of people in Alice Springs seemed to realize this. Consequently, prices started to rise and the houses started to go very fast.

Bidding War:

Any home in the $400,000 range would get scooped up almost immediately. And, if it was in good condition, it would probably catch a higher price. A bidding war would take place. I’d never seen the market like this before. It almost seemed like a housing feeding frenzy. If you weren’t quick you missed out. I’ll give you an example.
Offer Asking Price

It was a Saturday. Marieta and I went looking at the open houses listed in the newspaper.

I normally never place an offer at asking price. I figure the seller has some “wiggle” room to negotiate. But, in the current market houses were going for more than the asking price. So, when we came across this very nice three bedroom home in a nice neighborhood, I quickly offered the asking price – $405,000. Now, I did that based on the interest rate, rental, and price analysis. The numbers made perfect sense. The property would pay for itself from day one. So, it was a good deal. And the house was in immaculate condition. It was in a great neighborhood. Highly desirable area. It would make an excellent rental property.

We received a call later that day. It was the agent.

Start the Bidding

“Dave, there were three other bids all at asking price. I’m giving everyone a fair chance to make their best and final offers. Then I’ll present them to the owner, who will then decide.”

I’d never been told that following an offer. I was in new territory.

All I could think of was … “How do I know there are other bidders? How do I know I’m not bidding against myself?” It all seemed a bit strange.

Anyway, I responded by asking, “So, what do I do? Do I just tell you a higher number and then you take it to the owner?”

“Yep. Just put in your best and final offer.” The agent coached me on.

“Ok. Let me talk it over with Marieta and I’ll get back with you.” I replied with my old standby. Give me some time to think about this one.

I discussed the situation with Marieta asking, “You mean to tell me we offered asking price and we don’t get the house? I never offer asking price. This is unreal.”

“Are you sure there are other bidders?” Marieta asked.

“Exactly! I feel ridiculous calling back and offering a higher price. How do you feel about it?” This situation was outside my experience and I was a little confused.

“We offered asking price, that’s good enough. Just leave the offer as is.” Marieta advised.

Increase the Bid

I let the deal get the better of me. I convinced Marieta to let me offer only $5,000 more and see if we get it. I approached it as a learning experience and if we got the house at the higher price the numbers would still work. It would still be a good deal. So, I figured we had nothing to lose and a lot to gain. This property would be a welcome addition to our portfolio.

I remember having a smile on my face as I called the agent back. This situation seemed ridiculous. I was going to call and tell the agent I’ll give him more money than the asking price. I felt silly calling. But, I dialed.

“We’ve discussed it and we’ll go another five thousand. So, our final offer is $410,000.” I told the agent.

“Ok, Dave. I’ll take that to the owner and call you later today to let you know. Bye”

The phone rang later that Saturday evening.

Game Over – Bid Too Low

“Sorry to tell you Dave, but you didn’t get the house. There was another offer way over your amount. These people really liked the home and were willing to pay.” The agent relayed the bad news.

But, I was relieved to know the agent wasn’t lying to me. There was at least one other bidder. That made me happy to know the bidding was on the level.

And, I was somewhat relieved to not have to pay $5,000 over asking price. Somehow, I felt silly doing it. Something inside me said it was wrong. A little voice was saying, “If the market is that hot, why are you buying? Leave it alone. Wait for things to cool down. The time to buy is when nobody’s buying. This is not the time to buy.”

I believe the new owners put in an offer for $15,000 over the asking price. Of course they only needed to throw in something just over $5,000 to beat my bid. They spent $10,000 over what was required to get the home. And, the sellers got a $15,000 windfall just by having multiple offers. Amazing.  I’d heard about “bidding wars” before, but this was a first for me. I’d heard houses were going for more than the asking price but I’d never been personally involved. For me, this was a wake-up call. The market was too hot for my taste. I decided to continue with caution. I’m looking for deals. And, normally deals happen when there aren’t lots of buyers. There were lots of buyers. It wasn’t the time to buy anymore. Unless you look where others are not looking.

I then stumbled on something new. A new area to explore. An area I hadn’t looked at in years.

Story Continues … Read Part 7