Have you ever wondered what the difference between bidding on a home and making an offer is? The terms are often used interchangeably. Although they have similar meanings, they are used in different circumstances.
For background, I have invested in real estate since 2003. I own multiple properties in San Francisco, Lake Tahoe, Honolulu, and in the Sunbelt region through private real estate funds. I've also written over 2,300 articles on Financial Samurai since 2009.
The Difference Between Making A Bid Versus Making An Offer
When seeking to purchase a house, making a bid versus making an offer is the same thing. The terms are often used interchangeably in real estate. However, there are circumstantial differences where using “bid” or “offer” is more appropriate.
Use The Term “Making A Bid” During A Competitive Situation
A “bid” generally carries more implications of a competitive dynamic against other prospective buyers in a contest to win and secure the property. Bidding also conjures senses of negotiating back-and-forth to an unknown outcome.
During a hot housing market, bidding wars are coming. Therefore, it would be more appropriate if you submitted a bid for a property with the hopes if beating the competition right there, or escalating your bid upward.
Use The Term “Making An Offer” In A Regular Or Weak Real Estate Market
In an uncompetitive real estate market, making an “offer” is the more appropriate term. An “offer” connotes a more straightforward proposition to the seller without having to compete aggressively against other buyers.
An offer can be considered more of a “take it or leave it” type of situation given the seller doesn't have any other offers in hand. You can use the term “lowball offer.” But you can't use the term “lowball bid” when describing your proposition to the seller. Lowball bid is contradictory to the situation.
Bidding War Means Multiple Buyers
You never hear the term “offer war” in a competitive purchase situation. Instead, you hear the term “bidding wars” due to multiple buyers trying to buy a house or whatever item is for sale. A bidding war is clearly a competitive situation.
What's interesting is that most home buyers say they'll “make an offer” or “put in an offer” in a competitive situation, instead of “place a bid” or “make a bid.” So there is inconsistency here.
Whatever the case may be, now you know the difference between bidding on a home and making an offer on a home. Bidders imply competing warring parties in an attempt to win with higher and higher prices. While offers indicate the price and terms a buyer is willing to pay, with a “that's it” attitude.
But both terms refer to the same purchase price, contingencies, and contract that a prospective buyer presents to seller.
Difference Between Bid Price vs Offer Price For Stocks (Securities)
To make things more confusing, Bid and Offer mean different things in the stock transaction world than in the real estate transaction world.
The bid price is simply called a Bid, which is the highest price at which a buyer is willing to pay for a security (stock). Whereas in the real estate world, the bid price could be described as the starting price or even the starting offer price.
Offer or Ask Price is simply called Ask, which is the lowest price at which a seller is willing to get for selling a security. The reality is, the seller will have to lower their Ask price if there is no demand.
The difference between the two creates a bid-ask spread. The wider the spread, the lower the transaction volume as buyers and sellers try to find the market clearing price. In a slow market, you might hear the phrase, “The bid-ask spread is large enough to drive a truck through it.”
With electronic algorithmic trading, the market is found almost instantaneously. During a live auction with an auctioneer, the clearing price for securities or whatever item is being auction will take more time.
”Hit the bid” – is from the seller’s perspective
Finally, let me explain two more common terms.
A trader will “hit the bid” when the trader is willing to sell immediately at the given bid price.
Maybe the buyer made a bid price too high and was immediately pounced on by sellers who “hit the bid” and offloaded their securities. Or maybe the seller was getting desperate and “hit the bid” because the bids were rapidly decreasing in price.
”Lift the offer” – is from the buyer’s perspective
“Lift the offer” is the inverse command to “hit the bid.” It is a command to purchase a security at the given ask price.
A trader is ‘lifting’ the offer from a broker looking to sell. When a trader lifts the offer, they immediately execute a buy at the given ask price.
I hope this article has helped clear any confusion you may have had about using the words “bid” and “offer.” Usage depends on the industry and whether you are a buyer or seller.
Real Estate Suggestion
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