What is a bidding war?

How do the sell my house fast San Bernardino experts describe bidding wars? It refers to a circumstance where more than one prospective buyers of a property starts to compete for the ownership via incrementally increasing its bids.

How bidding war works

A bidding war normally occurs when more than one potential buyers of a certain property starts to compete via having to increase price bids, sometimes by pushing the final price up past even its original value. The bidding wars mostly occur when the buyers are able to vie for the ownership of  a building, a house, or a business in a location which is desirable and mostly in the middle of a seller market.

It can be compared to an auction, where a bidding war normally occurs at a pace which is quite rapid, denoting that during the time of the bidding wars, the potential buyers are vulnerable to making emotional or rash investment decisions.



An example of a bidding war

Lucy and Mugenda each have a desire of buying a house which is listed at $250,000. Lucy decides to offer the list price and Mugenda responds by placing an offer of $260000. Determined to be able to buy the house, Lucy offers $270000, Mugenda counter with a price offer of $280000. Lucy gets to recognize this and she has a bidding cap of $300000 making her next bid to be a $20000 raise. Mugenda concede and Lucy is able to purchase the home for an extra $50000 than the original list price, which leaves the seller feeling happy.

Special considerations

When the market for real estate’s becomes quite competitive, there are some investors and speculators who decide to implement the escalation clause into the bidding contract on a particular property. The escalation clause refers to a statement which is indicative of a base bid price for a certain property and an agreement to increase automatically the bid by a certain amount of money in case another buyer submits a bid which is high and verified. What it means is that, an escalation clause will have to include the maximum price which the buyer is ready to pay for the property.

Like if in the above example of Lucy and Mugenda, each had incorporated an escalation clause where they will increase the bid by $10000 until they meet the $300000 cap,, the outcome would be different.

The initial offer of Lucy of $250000 would be met with Mugenda offer of $260000. The escalation clause of Lucy would respond with $270000 offer and then Mugenda would then have offered $280,000. After the next offer of Lucy of $290,000, Mugenda would have won the bid ware with a bid of $300000.

The strategy though convenient, tends to have its own drawbacks. A typical seller of a property will be aware of the maximum price which is set in an escalation clause, which means that, the seller might be aware of the potential amount the buyer is ready to pay.