Sauce for the Goose

In recent weeks, agents here at Warburg Realty have managed a number of competitive bidding processes which ended with the lead buyer backing out. For those of us who have been in the business a long time, such behavior no longer surprises us. Any auction situation can get the juices flowing, and we increasingly see that buyers bid aggressively in the heat of the moment, only to suffer buyer’s remorse the next day, or the next week. The question is: is that OK?

In any hot market, buyers may find themselves at a disadvantage. The properties they desire sell quickly, so there is a very short window for contemplation and decision making. In certain segments of the market, the first Open House is Sunday and the property is gone by Wednesday. Buyers feel pressured, and they may act, under the influence of such pressure, to secure the property, with the belief that once they have won the auction they will have more leisure to decide whether or not they really want it.

In the New York real estate market, no gavel falls to place both the buyer and the seller under obligation to move forward with the sale. Buyers develop cold feet. Sellers receive higher offers. But why do we demonize sellers who “break their oral contract,” but have no such negative feeling about buyers who do the same thing?

The recent incidents at Warburg serve as excellent examples. In one, a prospective purchaser led a field of six to win the property, a very well-priced postwar three bedroom; a week later our agent was informed that his wife did not want to proceed because her heart was set on a prewar apartment. This property was clearly postwar from the very beginning! This buyer made a conscious decision: let me secure the property, then I can figure out if we want it.

By the time the buyer reneged, the back-up buyers (remember there were originally six) had either moved on or cooled on the property, so the seller found herself back at square one. Actually, worse than square one. Now her expectations had been recalibrated by the bidding; having achieved a higher price once, she felt certain she could do so again. The problem: this unit would not fetch that price again. In the exuberance of the moment the bidders had exceeded the property’s actual value. In the cold light of day, without others on their tail, new buyers simply would not pay as much.

In another recent incident, the buyers concluded after bidding aggressively to secure the property that it required too much renovation. The husband and wife, it turned out, had asynchronous expectations. And perhaps the husband also thought he had overpaid. This is one of the major problems that arises in these competitive bid situations. The buyer with the winning bid has, by definition, paid more than anyone else. Some fear of having paid too much inevitably ensues. In any event, the result was the same as in the situation described above – a couple of days after the bidding ended, the lead buyer backed out. Problems arose for the back-up buyer, and now the property is back on the market.

So my question is – why are sellers so vilified for not keeping their word when they drop one deal for another, but buyers who, for whatever reason, decide not to proceed with a contract are not viewed in the same light? In each case one party has raised the expectations of the other only to disappoint them. In each case one side walks away from a conceptual handshake with the other. Is this unethical behavior, or is it just the real estate game in 2015? In my opinion, neither buyers nor sellers should make a deal unless they are prepared to see it through to completion. Either way, buyers who back out and sellers who back out have similar negative impact on both the transaction and the other party. If it’s sauce for the goose, it’s sauce for the gander.

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