Competitive Bidding: The Return

In recent weeks a number of Warburg agents have found themselves in competitive bidding situations. This phenomenon is increasing as the New York market continues to firm up, but the ground rules are quite different from what they were four years ago. In those unbridled days of 2006 and 2007 every asking price was simply a floor from which the bidding spiraled to dizzying heights. Today’s buyer is far more sober and conscientious, and today’s seller more realistic. Here are some facts and guidelines about the new art of competitive bidding:

* More often than not, today’s asking price is the ceiling for the bidding, not the floor. While some very well priced properties do still exceed their asking prices, it is the exception rather than the rule. Mostly the deal in a competitive situation is struck just below, at, or very slightly over the price.

* The Internet and a change in the law have both contributed to much savvier buyers. Websites like StreetEasy.com have made it easy for buyers to do their own research on comparable sales, so they can easily ascertain the prices for recent sales in the building and the neighborhood. And since co-op sales became a matter of public record, this isn’t true merely for condos and townhouses. A better informed buyer means a price which necessarily has a relationship to other similar  recent transactions.

* Spending a lot is no longer in fashion. As I have noted in these blogs before, my wife always comments that the world divides into two types: those who brag about how much they spent, and those who brag about how little. Given the ongoing fragile state of the economy, nobody much wants to be in Category 1.  Every buyer we talk to these days is focused on value. Now, different people have different ideas about where value is found and how to quantify it; that is what makes a market, especially in something as personal as a residential real estate purchase.  But, lacking the blind optimism of five years ago that real estate will go up 20% every year, buyers are cautious.

* In this environment, most buyers bid a little low to start (although not the 20-30% below asking price which we were seeing 18 months ago). And then they tend to come up slowly and deliberately. Competitive bidding situations are far less likely today to arise during the first week a property is available. Rather, the situation evolves over a number of weeks as buyers gradually commit to a property.

* Co-op sellers are more attentive than ever to which buyer is the best Board candidate. In the wake of the financial troubles of the recent past,  Boards have become more, not less, vigilant. Frequently the highest offer is NOT the best offer in a co-op sale. Board qualifications can often render the second place candidate the appropriate winner.

* Savvy sellers are pressing to get contracts signed ASAP. The 2010 market has been plagued by buyer’s remorse. Especially with competitive bidding , buyers are more likely than ever to have second thoughts once they have won the day. If they win they can feel “played”, or as if they have overpaid. It is crucial for the seller’s agent to make sure he has the building financial statements, approval requirements, and all other necessary information at his fingertips so the process moves seamlessly forward once an offer is accepted.

Competitive bidding is a flash point around which we in the industry can observe the profound changes which have taken place in the past couple of years. Everyone is more cautious, more data driven, more intent on getting value for their dollar.  As agents, it is our job to provide trustworthy expert advice and support. As a consumer, if you aren’t receiving that you aren’t getting your money’s worth.