Selling and buying real estate through auctions has become a popular method of accelerating the sales process while ensuring a fair property price. Due to the fast-paced and competitive environments these events create, more people than ever are interested in participating, creating a bidding war. But what is a bidding war in real estate actually?
We’ll explain the real estate bidding war to help you better understand this phenomenon and its components. Then, we’ll highlight how bidding wars work and how they may influence the participants’ bidding strategy.
After you’ve grasped the essentials, we’ll explain why this process is often considered a seller’s advantage and how you can handle it if you’re the property owner. Continue reading to discover what is a real estate bidding war, how it works, and how to successfully handle it as a property seller!
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What Is a Bidding War in Real Estate?
A bidding war in a real estate auction occurs when multiple interested buyers for a single property exist. As a result, numerous offers raise the property’s final price with each bid. Even though it can incite between two participants, it can also influence other participants to join the competition.
This phenomenon is most common in a seller’s market, where real estate is unavailable for sale. It’s most likely to occur if more participants are in the auction than properties for sale. Not only does this drastically increase the competition during the auction event, but it also gives the seller more pricing power.
Another reason a real estate bidding war may occur is the property itself. If the property is in a prime location, offers compelling features, and is sold for a lower cost than the average market price, it may fuel the competition and incite a bidding war. That’s why many sellers may intentionally set a lower starting property price to encourage the bidders to compete.
How Do Bidding Wars Work?
To better understand the process, you should know each step and how it influences the overall auction event and bidding strategy. Here are the phases of a real estate bidding war during an online property auction and what to consider:
Finding a reputable auction house
Before deciding to participate in a real estate auction either as a seller or a buyer, it’s important to find a reputable auction house. If someone is interested in buying real estate, this will ensure they get a fair starting price and that the bidding process is transparent and safe.
On the other hand, if someone is looking to sell a property, working alongside a trustworthy auctioneer will help them promote their property and highlight its unique details through professional listings. They will also make sure any documentation and transactions are handled swiftly and securely. In both cases, a reputable auction house ensures the entire auction process is transparent and fair for both buyers and sellers.
Pre-auction
The second step of the bidding war process is the pre-auction preparations. During this phase, the interested buyers register as bidders and prepare their bidding strategy to determine their budget.
Since buyers can review the properties and their details, they may choose the one that fits their needs best and plan how much they will spend on it. This is also the best time to determine the maximum bid based on the buyer’s financial opportunities to ensure they don’t overstep their limit.
In contrast, the pre-auction preparations of a seller revolve around creating a professional property listing that highlights the real estate’s unique features. They also include utilizing rigorous marketing efforts to attract more potential buyers.
It’s always recommended that sellers ensure the property is in prime condition for the best price based on the overall housing market value. During this phase, they should also enhance the listing with stunning visuals to highlight the property’s unique aspects.
When planning to incite a bidding war, remember that choosing a starting price lower than the overall market value can be highly beneficial. Doing so will encourage the participants to compete for the property, increasing its final price.
Auction
The main event in the bidding war happens during the auction itself. If the pre-auction preparations have gone according to plan, the seller will start receiving multiple offers for the property where participants compete for the highest bid.
Multiple auction types are available, but open auctions are the best ones for igniting a bidding war. Throughout the event, the bidders can see how much their competitors bid for the property, encouraging them to raise their offers. Since this creates a fast-paced, dynamic, and competitive environment, it can drastically increase the final property price.
As a potential buyer during the auction, always consider the bidding strategy. By previously planning a maximum bid, buyers know when they’ve reached the limit without overstepping it. Many online platforms offer a maximum bid feature to set beforehand to remind buyers when they’re approaching their limit.
Post-auction
Once the auction ends and the winner is announced, participants should know several post-auction tasks. First, the highest bidder must pay a 10% cash deposit on the full property price.
Then, the buyer and seller should contact each other to finalize and sign all the necessary paperwork. As auctions accelerate the selling process, the final payment should be made 30 to 45 days after the auction to finalize the sale and transfer ownership.
How to Handle a Bidding War as a Seller
While you may first feel overwhelmed by this fast-paced process, here are some of the factors you should always consider before finalizing the property’s sale:
- Assess the buyer’s overall financial strength: Always ensure the buyer has the necessary finances to complete the final payment.
- Prioritize cash offers: If the buyer relies on a mortgage, they may not get the necessary funding in time, risking the final sale. Most property sellers prioritize cash offers to ensure the sale moves quickly and without obstacles.
- Utilize escalation clauses: Some interested buyers may include an escalation clause that proves they’re willing to raise their offer if there’s higher competition. You should always review these contracts to choose the best option.
- Keep backup offers: Even though the highest bidder is the auction winner, remember they can always back out of the sale. You need to have a backup offer to ensure you complete the sale without repeating the entire process.
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Conclusion
After discovering what is a bidding war in real estate, remember that this occurrence can drastically increase the final property price. If you’re a seller looking to incite a bidding war, you should know that it depends highly on your property’s condition and the overall market demand.
As mentioned, one of the most common ways people incite a bidding war is by lowering the starting price and offering unique real estate features in high-demand locations. Lastly, if you’re looking for a trustworthy and reliable auction house to sell or buy real estate, check out what we at Auction Section offer. We always ensure the auction process is transparent and the properties have a fair price.
Since customer satisfaction is our main priority, we’re ready to go above and beyond to accelerate the selling process and help you with all the necessary preparations, promotions, and paperwork. So, contact us today and discover how we can help you buy or sell real estate without much haste!
