A Bidding War is Not a War
Over the past few years in what could be considered a seller’s market in most areas, including Playa Vista, many properties for sale have generated offers from multiple buyers. Some call this a “bidding war” and some buyers want to avoid this situation. It is important to remind people that competition is a sign of a healthy market and is not a “war”. Does a popular concert or show sell out? Of course, getting Hamilton tickets was no joke, but is it a war? Will a job have multiple applicants? Usually a good one will. Does the fact that people have to put their best foot forward and often don’t get the offer make it a war? Should you not apply because you might not get it? No! Scarcity of a desirable product, service, position, or outcome requires competition. This is not a war, no matter how much a figure of speech this is, and should not/cannot be avoided in a healthy, highly-populated society. Rejection, which is sometimes the end result of competition is disappointing, but should not be feared to greatly as to prevent as to inhibit attempting to obtain a scarce good or service.
To further elaborate how most standard residential real estate sales play out in a healthy market. 1.) Property is priced and prepared to elicit maximum competition within a certain segment of buyers. 2.) Buyers decide they would like to purchase property and make an offer. 3.) Seller responds to offers, often providing a multiple counter offer allowing them the opportunity to select from the buyers’ best and final responses. 4.) Buyers respond (or not) and seller chooses offer. This is not a war. There is no fighting, coercion, obligation to respond, nor is there even active bidding as there would be in an auction. It’s more like dating than a war. It is simply a mutual decision where neither side has access to perfect information about the other side’s negotiating position. While the buyer may argue that the seller gets to see all of the offers and can decide with all information in front of them. In fact, the seller is also very vulnerable, as they do not know the mindset of the buyer, the accuracy of the information provided, or the circumstances of whether that buyer is offering on other properties. They are normally just told what they want to hear to help encourage a certain choice. Choosing an offer is a leap of faith for a seller just as making a final offer is a risk for the buyer as they risk underpaying and not getting a property or unnecessarily overpaying.
Another reason why this is not a war is the fact that the buyer can choose whether to respond or not and how strongly to do so. There are no grenades or bullets hurdling toward the buyer where fight or flight is necessary. There is no need to literally or figuratively defeat an enemy. A buyer can choose not to participate, whereas in a war, some level of participation despite objections is mandatory as defense is a matter of life or death. No one dies if you choose not to respond to a counter offer or if the highest price you are willing to pay is not as high as someone else’s. You cannot vanquish your competition since other offers are blind and assessed within this vacuum. A seller makes a decision which offer to use much as a buyer makes a decision on which property to buy amongst competing properties. The non-acceptance of an offer is not something that should be taken personally. It is a calculated business decision based on assessing risk and reward. So, next time you’re thinking of not even trying to get a property you really want because of the fear of a “bidding war” remember, it’s not a war at all, you control your own decisions, sellers are competing with other properties as well and has massive vulnerabilities with respect to their decision and imperfect, and a rejection should not be taken personally as it is not a reflection of you, more a representation of the seller’s risk tolerance and other people’s opinion of value of the property.