Losing a property bidding war never felt so good. Let me explain.
It took about three months of intense searching to find my new home in the western portion of San Francisco largely because I was unfamiliar with the area and price points. Every house I saw looked cheap compared to where I used to live, hence I needed time to recalibrate my thinking.
I must imagine Californians retiring to places like Florida, Texas, Washington, Nevada, and Oregon must go through the same recalibration process since everywhere is so much less expensive.
During my house hunt, I met a number of realtors. Some were good, some were clueless. There was this one fella I met who happened to be the listing agent along with his mother of a house I wanted to buy (mother son team). It was a great 2,200 square foot, 4 bedroom/4 bathroom house with two levels of decks overlooking the ocean. The house was perfect for $1.2 million.
San Francisco is currently no ordinary property market. Prices are purposefully set low in order to attract a bidding frenzy unlike many other real estate markets where prices are set high and negotiated down.
Instead of earning his cut from his mother for selling the house with her (a sure thing), he agreed to represent me in the purchase of the house. It was a gamble he decided to take probably due to a little more money, his belief that he could convince his mom to sell to us, and to earn a good win for his own real estate resume.
Losing A Property Bidding War
I listened to all his advice and ended up bidding $1.38 million for the property. During the final hour, he told me that $1.38 million probably wasn't going to fly, and it was best if I up my bid to $1.5 million or above. Just think about that figure for a while. $300,000 over asking seems absolutely absurd. No wonder why people are so frustrated in hot markets.
I also wasn't entirely comfortable with $1.5 million given we're now encroaching on prices that I left behind in my previous neighborhood, which is more established and known for pricier homes. But when I heard rumblings that another bidder was planning to come in for a whopping $1.8 million, I decided to submit a $1.51 million bid.
A bidding war makes people go crazy. Be VERY careful not to let your emotions get the best of you when buying your “dream property.” The only reason why I bid $1.51 million was because I knew there was another bidder at $1.5 million. I also knew about the crazy $1.8 million bid. If by chance the $1.8 million bid fell through, I would kind of feel like I got a deal, even though $1.5 million is $120,000 higher than my original bid.
The property ultimately ended up selling to a retired couple who paid $1.8 million cash. They then spent another $200,000 updating the place. Nuts! I was sort of relieved losing a property bidding war because there's no way I would pay $1.8 million. But I was also miffed that someone would pay 20% higher than the next bidder for an ocean view property.
Takeaways From Losing A Property Bidding War
My takeaways from the experience are: 1) properties with unique attributes, such as an ocean views, an extra wide lot, or a famous architect tend to outperform during a bull market, 2) you don't need to be an investment banker, techie, or entrepreneur to have money given the old couple were immigrant small business owners, 3) the power of compound growth and savings is a main driver of wealth, and 4) there's more money out there than any of us know.
Although a part of me is sad that I lost the house, I'm also happy I lost so bad. If I lost by $10,000, I'd probably be pissed. But losing by $290,000 is awesome!
Further, if the market is super froth, you may be buying property ahead of a recession. Beware and always buy property using my 30/30/3 home buying rule. This way, even if a recession hits, you'll be protected.
The Upside Of Losing A Property Bidding War
I looked at a couple other properties with the son, but nothing else interested me as much. We parted ways for several months. During this time, I was able to bid on and win another house I randomly found on my own. I didn't involve the son because the property was an easy “as is” purchase. By letting the out of town listing agent negotiate both sides, I was also able to save at least $20,000 on commissions.
The way I look at it, I was the one who found the house and negotiated the contract. I acted in good faith by going with the son to bid on the property he and his mother had, and lost. There was no exclusive contract signed, and we lost touch for a couple months.
But then the other day out of the blue, I get a text message from the son. He told me he hoped the package of goodies he had to throw over my front gate didn't break. The only problem besides broken cookies was that he dropped off the baked goodies at my old property!
Before I could respond and thank him for the cookies and tell him I had moved, my tenants e-mailed me first thing the next morning thanking me for the baked goodies! They also told me a dining table light had shattered from the ceiling randomly. But not to worry as they'll find a replacement lamp to fix it.
What Would You Do?
I should tell the realtor that I have already found a place so he can move on. He's not hurting for business because he is part of his mother's team, and the real estate market is booming. That said, I do want to use him for a future property purchase or sale within the next five years because I think he's pretty good and deserves another chance. I've got an expiring tranche of CDs coming due in 2017-2018, which I plan to mobilize.
As for the tenants, I've spent a good amount of time making sure they are happy. I've provided them a list of handymen to repair electrical and plumbing problems as they arise. I immediately reimburse them for anything they spend. I even personally hand delivered a bench for the foyer so they can sit down and put on their shoes.
My goal is to keep the lines of communication open so they can take care of my property. I'd like for them to notify me of any problems so they can be fixed right away. A happy relationship is great overall. They are locked in for a two year contract with no rental increase.
I just don't know if I have the heart to say, “Hey guys! Glad you enjoyed the cookies, but they were mine! So you ate my cookies and you broke my dining room light shade? WTF?” They might feel so bad that they may offer to pay me more rent to make up for their guilt! With San Francisco rents so high already, I would then feel bad for them again.
Update 2021. I ended up buying a panoramic ocean view property in Golden Gate Heights for $10,000 under asking in early 2014 and much cheaper than the current place! I didn't have to go through losing another property bidding war. In fact, I bought another panoramic ocean view property in 2019 and in 2020.
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