Brooklyn Secret Agent: Competitive Offers or Bidding Wars

Today we bring you the 12th of an anonymous weekly column about real estate by one of the most experienced agents in Brooklyn:
Following last week’s column on the difficulties of being a buyer of real estate in brownstone Brooklyn, I want to share my thoughts about competitive bidding. Unfortunately there are as many approaches to this as there are sellers and brokers.

This is how I do it. When I first meet a seller, we discuss the possibility of multiple bids. Usually the seller becomes gleeful at the prospect and wonders how that could possibly be a problem. Then we discuss how to approach it. This is one of  those subjects which is best addressed ahead of time. I recommend that if we get multiple bids we will hold a “best and final” round, asking buyers to give it their best shot and promising to accept one of those. It takes some convincing — the seller often wants to know why it isn’t best to just show each bid to all the other bidders. I explain that revealing other bids is so difficult on buyers’ psyches that many good ones drop out. Most sellers get this. I really mean it when I say “best and final.” The process will be over and the best offer will be accepted. 

The best laid plans, however, do not always work out. Sometimes after the best and final offer is accepted, a new offer comes in, not because we are still showing, but from someone who had seen the property previously. If it is higher, most sellers want the extra money. About 10 percent of sellers in this situation decide to be honorable and stand by their accepted offer. Usually the seller will allow me to go back to the accepted buyer and offer the opportunity to match, but not always. For example, two years ago the sellers of a Park Slope house accepted an offer after one week, only to see six more offers come in. The seller stayed with the first one, but required the buyer to waive their mortgage contingency to keep the deal. That was one of the few sellers I’ve seen leave money on the table — about $15,000.

All brokers handle these situations differently. Some make up bidding wars where they don’t exist. Others shop each offer against the others. Some deliberately underprice property to generate competitive bids. I know of a deal where the broker held three “best and final” rounds. Really? It is very hard to be a winning buyer when you don’t know the rules of the game.

But after all, real estate in New York City is a free market. And free markets, just like democracy, are messy.

25 Comment

  • BoerumHill

    Twelve is a nice number. This seems like a good place to stop.

  • no-permits

    i still think this is donald brennan.

  • daveinbedstuy

    I don’t see anything controversial in today’s thread. Maybe we can talk about something else.

  • At the risk of stating the obvious, making up fictional rival bids is completely unethical. While the writer implies that there are rules to the process of buying real estate, manufacturing a bidding war where none exists would imply that anything goes. Tough luck to the buyers — people looking for homes — who have to entrust their hard-earned savings to a bunch of liars.

  • daveinbedstuy

    Gotta love the 20th century technology here in the Disqus comment system!!!!!

  • maybe a good use of this column would be to share real-life horror or success stories of transactions anonymously. blind item fun!

  • The concept of “best and final” rounds is inherently flawed precisely because the seller is not bound to accept the best offer, which undermines the entire rationale behind the concept. Why should any bidder submit their actual “best and final” offer knowing that the seller might continue to entertain additional offers?

    • @brooklynguy. I respectfully do not think that you understand the concept of “best and final.” Best and final = the buyer’s “best and final” bid. Think of Ebay or any auction.

      For you to say “Why should any bidder submit their actual “best and final” offer knowing that the seller might continue to entertain additional offers” sounds self defeating. You are right, the seller is not obligated to accept any offer but believe me – buyers and their brokers in a bidding war, usually feel “better” by having the opportunity to submit one. In fact – they are the ones who usually request it.

  • That’s not the only problem with best and final, or bidding wars in general. Here in NY, where the contracts are verbal and not binding and with no earnest money at risk, even when a broker isn’t making up the bids, the “bids” could be completely not serious – that is, from people not serious about closing, or totally financially unable to close. Sure, that’s not great for potential buyers to do, but with nothing binding or at risk, and since the seller also can accept verbally and then change their mind before they are in contract, buyers are no worse than sellers when not totally serious about closing on a sale.

    Which is why, when buying, I refused to get into bidding wars, or when selling, to spark (which I definitely could have.) It just doesn’t seem fair to buyers, and I don’t like to treat others in a manner in which I don’t like to be treated when a buyer. I talked to some agents who had the strategy to price low and get a bidding war going, but that wasn’t for me as a seller, so I didn’t hire them.

  • This “Secret Agent” is a prime example of why telling someone you’re a broker is met with the same reaction as telling them that you have a few 8 year olds chained up in your basement.

    Scum of the earth.

  • slopemope

    If goldman refers to clients as muppets, how do bk residential re brokers refer to theirs?

  • slopefarm

    Well, after 12 weeks, the admission that some in his field fabricate phony bidding wars is the first true “secret” we’ve learned from this agent. I’ve been in several bidding wars where stopped well short of the peak bid only to get a call a week later asking if we were still interested. I wonder how many of those high bidders never existed.

  • I myself as a Realtor love the “Speed round/best and final offer”, it’s what we are in this for!

    As for the unscrupulous Realtors who make up bidding wars that don’t exsist: “Shame on you”. Hahahaha!

  • There is nothing wrong with a best and final in an instance where there are multiple bids. The listing agent has an obligation to the seller to produce the best deal. Notice I said best “deal”, which is not necessarily the best raw price. Someone in this thread alluded to buyers whose financials don’t measure up, leaving them unable to complete the deal. A well managed bidding process is going to have buyers providing proof that they can complete the deal – pre-approval for financing (though that is NO guarantee that they will get the exact loan needed on the property, especially if it appraises for less than the contract price), and proof of liquid assets needed for the downpayment. There are buyers who are ready to put in significant cash, or sometimes all cash…..the agent has an obligation to the seller to verify that the cash exists.

    On the fairness of bidding wars: there is nothing inherently unfair about a process of dealing with multiple bids. If demand outstrips supply there has to be some process for eliciting a market price. It’s true in reverse: in a depressed market a house sits for as long as it takes for the price to float down to where buyers find value.

    On what constitutes the “best” offer: it isn’t always price. two similar offers will differ in the amount of cash the buyer is putting into the deal, and the contingencies on the buyer’s side, such as whether the buyer has to sell first in order to buy or the buyer’s proposed time to closing. For instance: which is the better offer (numbers made up for the sake of an example):

    a) 1,280,000 with 25% down
    b) 1,245,000 with 80% down and a coop in contract to be sold
    c) 1,240,000 all cash