Hurry down! They won’t last!

My jaw is hanging to my chest.

This is a setup, and you walk your clients right in. Every time. Is it that hard to recognize?

This is the sellers' agents' new game. Like any good salesperson, they know that giving buyers too much choice depresses sales and reduces urgency. So they look at their listings and pick one property in an area and price point to focus interest. It's always in a "desirable" area, and it's never a complete fixer-upper. The price is set slightly below the comps--and the urgent whispers begin. "There's a lot of interest," they say. Of course--they say this to the very first buyer they talk to. They're not trying to report interest. They're creating it.

It only works for a few select properties here and there. Many sellers won't play the game because they fear leaving their imaginary fortune on the table if a bidding war doesn't happen. And after all, you've got to focus all buyer interest on one house, not let it diffuse over multiple properties. Buyers' agents--those who take listings, at least--play along hoping they'll be the one to win the lottery and get the winning bid. Better than poking along in a dead market, after all.

It's a setup. And you should tell that to your clients right from the start. As soon as you see a fixed-up property coming on the market below what you think it would sell for--absent a foreclosure, estate sale, or other legitimate reason--just run. Or at least warn your buyers they're about to get played.

Incidentally, none of this is speculation. It is a firsthand report.

During our most recent home shopping adventure, we had this happen to us multiple times. Each time, we called the seller's agent's bluff. Each time, we were right. Of the three times we were told of "high interest" and "lots of action", two of those homes are still on the market (for less money as well). The third home we eventually bought - and for a lot less money than the "high action" price.

You don't need to be EInstein to figure out a good deal. But you need to know houses, and be realistic about what projects are going to cost, what will return your investment, and how long it will take. And you need to really know cities and towns, and have a good grip of recent resales. Houses that are well priced, considering location and home style/conditon, weil get action. Those that are not, will not get "action". It's so simple it hurts.

Its a buyers market. Don't give in to the "high action" hype, especially if all of your education tells you it is unwarranted. If a realtor is being overly forward with claiming there is "high action" before you even state interest, be imemdiately suspicious because you are being baited. A good realtor doesn't play those games - if you are interested you will ask, and if you are not interested then you don't need to know. That said, we recently sold our home in Framingham, and kept it in great shape on a good lot. In one week, there were 20 private showings, and 3 offers. We got only 5k less than our asking price and had a signed offer in only 7 days on the market. We priced it right and didn't have to "create" any "action". My wife and I have better things to do than to play those stupid games to eek out a few bucks, if any. No doubt we sold for 10% than we could have a year ago but that's the way it is.

As a buyer who watched the market for a long time, I have to say this does happen to a few good houses in the one town that I'm interested in. But I'll never make an offer on such a property because you don't want the competition to drive up the price, especially considering this is the buyer's market.

Your only a virgin once. I think it's just a good marketing move in that you have about a week and half were you are truely new to the market. Sounds like Middle did many of the same things without going over the top. Congrats on selling, were are you moving to?
Based on Rona comments, if you were to try this..... Should you plant some fake buyers at the open house? I think Rona would be able to sniff them out. Has anyone ever planted a fake contract, say by the sellers friend? Is that illegal or just wrong?
Getting the most out of what customers will pay happens everday in all the products and services we buy. Just look at the Fair Trade Price were you add 15% to the price of your coffee. 90% of that money goes to profit.

I must say, no buyer I have ever worked with is so gullible or uneducated as to succumb to being "played". I sometimes have a seller's agent inform me that an "offer is coming in" but we usually take that with a grain of salt and sometimes it is true and the property goes under agreement and sometimes it remains on the market. I do need to inform my client of anything I learn about a property but none of my buyer clients would ever fall for "action" tactics. Most buyers are educated about the market and know what they want to spend.

Good agents don't play these games and I would venture it's not the norm.

I actually used this tactic on a two-family property that I listed in Roslindale last fall. I listed the property at $449,900, had an unbelievably busy open house, ended up with five offers, had the property under agreement in 8 days and closed it for $500,000. I feel no remorse for employing this tactic because I was doing my duty working for the sellers and I will tell you that the sellers and both their attorneys were ecstatic with the results. On the flip side, I've been on the other end as well with mixed results.

Rona, I'm reading your post as though you really did encounter a hot spot based on your comment that your buyers came in second and bidding wars. If I read it right then I agree, hot spots do nothing for buyers markets and it strongly confirms that all real estate markets are local...maybe a little too local.

Two weekends ago we attended an open house in Reading. Before we could even get in the door, we were told by the selling agent that they already had "an accepted full priced offer" for the house. But please take a look and feel free to submit a back-up offer, or she had PLENTY of other houses like it that she could show us. It seemed wrong to have the open house if they had an accepted offer, and even more wrong for her to pimp out her other showings (just reinforcing the belief that many sellers agents have open houses just to meet buyers).

We were less than impressed by the house, and were practically shaken out of our shoes as the commuter rail blew by. Wonder if this supposed buyer for the property had heard the train? I don't fully believe that there is an offer, and I am watching the property closely, still on MLS two weeks later.

Guys & Gals, I think Rona's experience is showing us that it's not *all* bad news out there. Those of us fortunate enough to live and work in the downtown city center market are only too well aware of bidding wars still being commonplace. There are still areas of this state that buyers find extremely desireable and are both willing *and* able to pay top dollar. In spite of all the gloomy talk about recession, buyers market, tightened mortgage requirements, etc. etc., there is still a huge amount of money flowing around the more fortune-blessed zipcodes. Many of the clients I work with don't even need a mortgage. And there are many many many people like that out there. The first law of real estate has not been rescinded folks! Location location location!

Rona here with a few points of emphasis that some of you are missing:
I hate bidding wars. I wish they would go away and never come back. (This is not good news, Sunshine.)
I work very carefully to figure out if engaging in one is the only way to get a property of that type. My buyers know at what price-point to stop. (Marcus, sorry about your jaw.)
In "hot spots" the supply is low and the demand is steady. In these micro-markets it is not a buyer's market.
I am expecting that when the numbers come in for this quarter, that sale prices are still going down, on average, in these locations, too.

Dealio, which house was this? :) I'm really curious as we were looking in Reading too.

I had a similar experience in Wakefield about a month ago. We went to an open house which looked nice in the pics (always does, yeah?) and seemed overpriced by about 20-30K. Our impression wasn't good enough to want to buy it but we were told by the sellers' agent that the sellers had accepted an ABOVE asking price offer (there were apparently several bids) and she was still holding the open house because it was too late to cancel it or something.
We have viewed a handful of properties lately that were in a multiple bid situation - I think that even in this supposed "buyers' market" , a well priced, well maintained house will sell if it's in a good location.

I have recently made an offer on a house in Waltham following a bidding war set up as described by Rona. The offer was accepted, albeit it was not the highest. The house lasted for one day. I have been told by neighbors that there have been 10 offers at or above the asking price.

My offer was not the largest. It was 50K above the asking price and the largest one was 100K over the asking price. My offer was accepted because I said ``hello'' to one of the neighbors. The neighbor was visibly frustrated that of the 30 couples passing by her property nobody would ask her anything. After seeing the house, I was resigned to the idea that the house will sell above my upper limit. I spotted the neighbor and felt like I owed her an explanation. Unknowingly to me, she called the owner, an elderly British woman, and just asked her that I be the next neighbor.

Both I and the seller's agent were puzzled. Of course, there were other considerations, as I learned from other neighbors. The highest offer came from a couple who needed to sell a house in order to deliver upon the promise. Not good enough for the owner, who wanted to move to a retirement community on a precise, non-negotiable date.

So, things are not always wrong with bidding wars. They might be the result of an owner for whom timing is more important than the price. It is important for the buyer to understand what is a fair price for a house and make offers accordingly, sometimes irrespective of the asking price.

My home sold at a premium using this technique. I hope that my agent did her best to “create” interest in my property. That skill is why I paid her.

For the record, are agents worthless, or are they cunning manipulators who collude to inflate prices and markets? Let’s pick an opinion and stick with it.

My agent accomplished what the cabal of pseudo-pundits on this blog tries to do everyday. She was able to concentrate interest to generate a sale in the same way that others on this site seem to try to dissipate interest in buying homes with dire predictions of market collapse. With regard to my home, her technique worked and yours didn’t.

Although I stayed away from bidding war, I do agree that bidding war is a perfect technique to sell a house. It puzzles me that in this buyers market there are so many buyers accusing seller or seller agent from every possible angle. Priced too high, unrealistic. Priced too low, setting up bidding war. If it is truely the buyers market, buyers should set the price and sellers price is totally irrelevant. Think ebay, everything can be priced at $0.99 and eventually go up to a real value. Why can't houses?

The only thing to blame is maybe some agent is giving leading information such as " there is an offer coming in". But it is still the buyers decision whether or not listen to it. Technically those seller agents have not lied at all.

The only reason that I stayed away from a bidding war is that I don't know the value of a house exactly. And I don't want to guess what someone else will be paying and try to outbid that. Bidding war itches, that's all. But if I were the seller, I might price the house to $.99 and see what happens....well, maybe it sounds too ridiculous.

Bill - congrats on the sale of your home! Love hearing stories like yours that contradicts the 3 or 4 self proclaimed real estate experts who post here day after day after day

Our agent did the same thing and our house sold in less than a week. In this market, could care less how she did it - was totally worth it to see that SOLD sign sitting out front.

I sold my condo in a bidding war (ended slightly under asking price) and was on the losing end of a bidding war to buy approximately six months ago. I have no problems with bidding wars in either situation, assuming there are actually other bids. Its a free market economy, sellers should get to accpet what they feel is the best offer, as long as they and their realtors are being truthful about the situation.

I guess I shouldn't be surprised that sellers approve of scamming buyers.

However, scams do leave victims. Buyers overpay, as several sellers have boasted about their own transactions. Other listings go stale, as agents focus all interest on the anointed "hot" property.

Markets work best with freely-flowing information, and clearly, not all agents are as interested in Rona in helping people make informed decisions.

Amazing. All these bidding wars. Yet prices keep dropping, and supply going up.

sky is falling, it's true the anecdotes contradict a number of us. The statistics on the other hand back us up. I know which side I prefer to be on...

This tactic does exist, and definitely can work-- for the right property in the right neighborhood. My wife and I have lost out on two houses that we've loved since we started seriously shopping last October: one we simply got outbid on, but the second one was a bank-owned house in fairly good shape that was purposefully put on the market well below its worth (listed at $247K when it could have sold for low $300's easily) to generate interest and spark a bidding war. It worked-- we went to see it the second day on the market, and there was a line of other buyers waiting with their agents to get in after us. They ended up receiving 18 offers in those 2 days, and it was under agreement before we got to submit our offer (before we even got home in fact!).

Still, it sold for less than it could/should have (we were going to offer $10K more than it ultimately sold for) so I don't think this tactic consistently generates a higher sale price. It also wouldn't work for a dump, or in an unpopular community. But there are enough spots out there with buyers who have been waiting for a fair deal that it's not at all surprising to find some bidding wars, even in this market.

This scam of the week will only work for so long... eventually the slow to catch on will get it... capitulation is only a matter of time. There is absolutely nothing on the market right now worth a bidding war-NOTHING. However; when attending open houses the seller’s agents out there have you believing that theirs may be the last hot property out there. Gee, I wonder when the next big beautiful house will pop up on the Newton market!?! Oh, there's another one!

Charles, say what you will, but my house sold in 6 days and I turned a tidy profit. And I bought it in 2005. The only statistics I really care about are based on my sample size of one.

Oh my goodness, some of the responses here are quite interesting. If people want to assume I planned a game in order to con buyers into bidding on my property, fine. The buyer who won, at just below asking price, and only 5k higher than her original bid, appears happy. We had the inspection, nothing major came back, and she did not try to renegotiate the price.

All I know is I have lived in my area for 9 years. I have been following the real estate market very closely for research for two years. I picked a price that I thought was competitive becuase I had already closed on my new home and wanted my existing condo to move. My realtor doesn't even work in the city normally, so was not in a position to create any type of buzz per se with other realtors. Folks, well-priced properties still move, and they occasionally attract multiple buyers. I don't know why some people here refuse to accept that. Solme people just like to own for the long term like myself, and consider the ups/downs of real estate prices a normal thing. I sold low, and I bought low. No scam involved.

Rona here. Great conversation, folks.

One comment about the market:
A buyer's market has more supply than demand. In the micro-markets where there are bidding wars -- in a specific price, size and type range -- there is a limited inventory. This is a mini seller's market. These little hot spots are in a overall climate of a receeding market. It is a time when buyers need to be very aware and very careful. I don't think the listing agents should be jumping for joy, either.

Market Value is the price a buyer is willing to pay for a property. It has nothing to do with mortgage appraisals or falling markets. If a buyer is willing to pay $30-40K over a mortgage appraisal because they want the property than that is what it is worth. Those of you who believe differently need to take economics 101. A sellers agent's job is to get the sellers the best deal for their property.

Here is the $64,000 question:

How can you EVER prove there is a bidding war? You can't ever see the other offers or know for a fact they even exist. All you know is what the seller's agent tells you. They could say anything.

There is no such thing as a bidding war... it can never be proven. :)

It is a time when buyers need to be very aware and very careful.

Exactly. Especially since it's June, the traditional silly season in Massachusetts real estate.

Buyers who get caught up in the "immunity" hype during a global housing downturn are like people who hop on small hills during a tsunami. First, they feel safe. Then, they notice they're standing on small dry islands surrounded by incoming floodwaters. Then, they're not.

well, I was in a restaurant on a friday night fielding offers from my Realtor from two different sellers who both knew the other was submitting offers. That's all the proof I need, lol.

I guess I don't understand the extreme belief in statistics some people have, meaning to the point where they think stats can predict the future. I agree we are in a buyer's market, but that doesn't mean a well priced property can't generate a bidding war without the seller's agent having to lie about it.

buyerandseller,

You're right, but perhaps the problem comes when people try to use the "hey, lots of folks were queued up to buy my house" anecdote to suggest that it indicates a healthy market (city/statewide) overall, or that there has been no bursting of the bubble.

Hi JChristian,

Well, I would also agree with you that my one experience doesn't change the fact that we are in a buyers market, and sales have slowed significantly. I just think, and have stated on this blog and others, that well priced properties will continue to sell. After the buyer and I settled on a price, a realtor called my realtor and said that his buyer (a third) was just about to put in an offer. There are some buyers out there ready to make offers, and will. Do they have all the control, and do the sellers have to price accordingly, absolutely. But there is always someone looking to buy in a good area for the right price.

umm, the reason we think stats can predict the market is because they can...

Which is why I sold a lot of real estate in 2005. And sure I still would have made a profit if I had sold now, but I would have made much less of a profit.

Of course a property can always have a bidding war in any market. That's so obvious. The question is of actual market value, as Rona to her credit points out.

If a seller offers a nice south end condo for $10, and its bid up to $100,000, did the seller do well? Clearly there was a bidding war. And equally clearly the seller did not do well.

Sometimes the level of economic ignorance on this blog just baffles me. But its really valuable insight, which has affected my macro investment strategy (and is why I participate, in case you are curious. Also as I'm retired from real estate development until this is over, I have time on my hands... )

Well, I think stats can change year over year, so I won't be using them as more than a guideline for future possibilities myself. I also sold my place that I bought six years ago for price today that was almost 40% higher. So, pretty happy with that as well. I also bought a single family in a good eastside location in south boston for 40% less than the original asking price.

I'm not expert. I'm just someone who has made educated decisions and created good opprotunities for herself in this market.

Buyersandsellers, you made 5.7% compounded annually, leaving out carry costs. Not precisely a return I'd brag about personally.

I really look forward to getting back into real estate. It's great fun for me, and I made millions. But I have trouble not taking it financially seriously. It's not quite so much fun that I want to lose money at it, an approach that seems to divide me from many here.

You can go back in this blog and see my opinions, and judge how accurate I've been. Wonderful thing about being recorded.

This happened all on its own when we sold our place (by ourselves) I made everybody sign in and by the 10th person or so people started commenting on how many people had been to see the place. I never said anything about offers, but we had a great place that showed well along with a number of buyers who showed up and demonstrated lots of interest. I think it actually turned one or two buyers off of the place as they were looking for a firesale as opposed to a contested , but fair deal (which I would argue is what the buyer ended up with)

Hi Charles,

Yes,I am happy with an almost 6% annual return on my property. I think from a historical viewpoint, that is a perfectly respectable return on real estate. I'm surprised anyone would claim otherwise.

Carrying costs were only a hundred dollar condo fee, utilities around $80, and a mortgage that was cheaper than rent for the same area. Then of course there are the tax deductions. So, again, pretty happy with my decisions.

I'm not claiming that's not a good return historically - it is, around 2% higher (leaving out carry costs, once again). But its not a return I'd be happy with for the last 6 years - I think it underperformed the S&P by more than half. And it underperformed my own real estate investments over that horizon by a heck of a lot more.

Making less money than most alternatives is not, once again, something I personally would be pleased with. And that opportunity cost point is one of the things I, among others, have been trying to get across here.

Its great that you made it, and beats losing money. But that doesn't make it a great investment, it just means that during a record bubble it was an ok investment.

Charles, I think you assume that the 5.7% represents his return if he paid cash for the property. If he put 10% down, I think simple math says he actually got a 57% percent return, probably less once you factor in the mortgage payments.

My experience as a Realtor is that there are multiple offers out there when the properties are priced at or slightly below market. The foreclosures always have multiple offers as they're always quite a bit below market. It's not in the realtor's interest to lie about an offer, I typically don't even mention that there's another offer unless the buyer's agent asks about it. People who claim they're going to send in an offer sometimes don't and that still happens. Deals also fall apart.