What does it mean to fail at a bidding war? If you enter a bidding war, and someone else gets the property, it might be a failure. It might not.
Three ways to fail at a bidding war:
- Pay more for a property than its market value. And choose a property that does not stand the test of time for your lifestyle.
- Lose perspective and be tempted into paying far more than the market value of the property.
- Do not go high enough for a property. Lose a property that was uniquely good for your household.
Avoid a property that will not serve your needs for seven or more years.
Real estate is expensive to change. Any property you buy should serve the life you expect to be living for the next seven to ten years.
- If you expect that your family will grow in the next few years, do not choose a one-bedroom condo just to get into the market.
- If you are choosing a condo for housing while you are in graduate school, be sure that you can rent it for enough to cover your mortgage, after you graduate.
- If you are buying a big house, but your children will be moving out within a few years, do you really need to pay for a house with a guest room?
- If you will be retiring in the next five years, do you want that house up the hill? Consider whether you can maintain the land for the time you own it.
Above are the kinds of purchases where you should not go for broke in a bidding war. However, if you find a house or condo that will serve you and your household over time, and you like it, paying top dollar may be the right thing to do.
Why do people lose their heads in bidding wars, then pay too much?
False belief: If all these people are making offers, this must be a great place.
Reality: It might be a great place, at a certain price. It is not a great place at $30,000 or more over fair market value. Defend yourself by having an accurate market analysis, so that you know what the property’s fair market value is.
False belief: If I don’t get this place, I’ll never find anything like it.
Reality: There is always another property. Keep that in mind. It may not feel that way, but it is true. There are very few truly unique properties. Get advice on what kinds of properties are available in your location and price range before you enter a bidding war. If the property is a common type, you do not have to go out on a limb to get it in competition. Defend yourself by knowing which types of properties might be special, and which types of properties you are likely to find again.
Take a breather.
Part of why bidding wars work is that they create a fear of loss. We humans don’t like to lose. If losing the house and needing to do find another house becomes a big thing for you, you are at risk of overpaying or buying something that is not quite right. The best tactic is to keep your eye on the long-term goal. That goal is years in a house. The stress of bidding wars is temporary.
Defend yourself by stepping back – even if it is only for a few minutes – before deciding on your next offer in a bidding war. When you step back. Get grounded:
Look at the listing sheet again. Think about the neighborhood, the commute to work and school. The daily activities in the house and in the community.
Recalculate your monthly payment at the new price that you are offering.
Make your best decision. Breathe. Look at it again. Breathe. Now, make your best offer. Know this might be your house, or not. Either way, you are a successful person who is about to buy a house.