Losing A Property Bidding War Never Felt So Good

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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.

Related: Strategies For Winning A Property Bidding War

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.

Related: The Difference Between Submitting A Bid Or Making An Offer

Hard Conversations

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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16 thoughts on “Losing A Property Bidding War Never Felt So Good”

  1. I think being open and honest with the Realtor is the way to go, like most others have already suggested. Things have a funny way of coming back to bite you when you try to play games!

    We recently bought our ‘dream’ house at auction, and it’s incredible how emotions do play a part. When we thought it was going to be competitive, we put our limit at $300k over asking price (under-pricing is rampant in the Melbourne property market also), but later when it sounded like interest was waning, we were only prepared to pay $100k over. We settled somewhere in between, then got lucky at the auction against one other couple with our final bid which took us just past our limit – turns out it was just enough!

  2. I’d tell the realtor thanks for the cookies, and let him know your new address. Let him know you randomly found the place and worked out a deal but would like to keep his name in your rolodex for a future purchase in a couple of years.

    Tell the tenants “Merry Christmas and thanks for breaking my light”. Well, maybe just stick with Merry Christmas. :)

  3. Oh my gosh they ate your cookies! That’s kinda funny, but also quite an odd situation. The tenants already ate them, so you might as well take the credit since they were either unlabeled or the tenants didn’t bother to check the label. If you have a good relationship with the realtor I don’t think it will be too awkward to tell him you bought a new place, but you don’t have to go out of your way either. But if he’s still spending a lot of hours looking for a property for you, it’s probably best to let him know you found a place. Now I’m hungry thinking about those cookies…

  4. Mr. Captain Cash

    I wouldn’t feel bad for buying a property without using the real e-state agent as you gave it a good shot with the purchase that fell through. I would be straight with the agent as Sir Salty recommends to have the best chance of keeping the relationship positive as I’m sure if he was to find out he’s been sending cookies every couple months for the past year to your previous residence feeding your tenants i’m sure he’d be a little upset. Congratulations on finding a place!

  5. I’d say to be straight with the agent, especially if you thought he did a good job for you. You seem well connected, so I’d try to find him another potential customer as a show of good faith if you really feel bad. A little good news to offset the bad. He’ll probably be professional either way though.

    We get in (and try to start) bidding wars often at work in commercial real estate development. Better to be on the selling side when that happens. You are right, the “animal spirits” really take over if you can get several parties vying for a prize. It quickly goes past analysis of an asset’s value, and becomes competition to win at almost any cost.

  6. I had a very similar experience with a recent purchase but first, I would probably not say anything to the tenants but I would let the realtor know saying that hopefully we’ll have a chance to work together in the future. There’s no contract so he has no reason to be pissed that you didn’t work w/ him on a place you found yourself.

    I was looking at a place that didn’t sell, then they dropped the price about 5% which generated a bunch of interest and created a bidding war. They said everybody would have a look if you bid the original asking price. This generated about 5 bids at that price. Next they said bring your best offer which I did, stretching a bit over what I was comfortable with for that property. Luckily for me the house sold for far higher than I would have paid for it, ~7% over the original asking price. I bought a place down the street that dropped out of escrow for financing reasons for less, that has a 10x better view which I’ve been able to remodel to my tastes. win – win.

    1. Gotta love that scenario! Well done.

      It is interesting how underpricing a property really brings out the wars. If I ever sell (which I never will), I’m going to go the underprice route. Sorry future buyers! It works.

  7. I had a similar experience with a realtor who was a friend of mine (not a close friend more of an acquaintance). He showed me around in a neighborhood on multiple occasions. We submitted a couple of bids, but missed out. I then heard of a couple that may be selling their house, I dropped off my card and a few weeks later we entered into a contract – without any agents. I told the realtor I was working with (no contract with him), and he said cool – just think of him and refer him to friends. I felt bad, but ultimately, that is the business they are in. If Seller had been represented, I would have absolutely used him because he would have been entitled to his commission under law and realtor ethical guidelines. But since Seller was not represented it was different. I have referred him a few times, so I think I did my part. Looking back on it though, I wish I had given him a token thank-you. Maybe a gift card to a nice restaurant. I would do that now, and should have done it then.

    In your case, I wouldn’t feel bad at all. He represented you on a one-shot home and missed out.

  8. Let the tenants draw their own cookie conclusions. Let them do the legwork in fixing the lamp and offer to reimburse. Perhaps a contractual caveat for incidentals arising out of negligence could be used in the future.

    Real Estate Agents are a dime a dozen. I can never choose one without upsetting three more. I am not a real estate investor or anything but I have looked at some investment properties. I use third party agents for primary residence and friends for potential investment properties. Too much emotion associated with primary residence; especially when you have a spouse involved.

    1. I try to not use a real estate agent wherever possible, not bc they are bad people, but due to the stubbornly high 5% sellers commission.

      I wouldn’t have used the son of it wasn’t for this interesting mother son listing agent team scenario. I thought getting the son to represent would be a smart move. It woulda worked if it wasn’t for the crazy $600,000 over asking initial price bid!

  9. Folksy honesty with a smile usually works for me.

    The realtor will either take the news like a professional and be just fine, or he’ll react unprofessionally and you’ll have to find another realtor in the future. But in that case, you probably wouldn’t want someone like that on your team anyway. You certainly know real estate is a business. Your realtor should see it that way too.

    As for the tenants… I think it’s kind of funny they ate the cookies! :-) I’d let them continue to think you gifted the basket. In a way, you involuntarily did!

    But more broadly, tenants are going to break things. If it’s an isolated occurrence and you think they are good long term tenants (and sounds like that is the case) then letting this slide is probably the right call.

    Plus, you _want_ tenants to tell you when things break or need repair… not hide it from you for fear you’ll overreact.

    1. Couldn’t have said it any better myself. In my younger years, I rented a place. In my bedroom was a glass covered ceiling lamp. While asleep one night I woke to a loud crash next to me. Scared the sh*t out of me. I got up to see what happened and start walking across the room to find the light switch, only to find myself walking barefoot on broken glass. Somehow, I don’t know how, but somehow the ceiling lamp came loose and crashed to the floor. I hadn’t touched it since moving in because it didn’t need bulb replacements, none-the-less that it would have required me to use a ladder which I didn’t have at the time. I called my landlord to report what happened and got an earful on how that didn’t make sense and suspicion I had something to do with it. I was beyond frustrated, knowing I was a respectful tenant and simply reporting as soon as I was aware of something. I got out of my lease as soon as I had the chance. If you start to see a trend of odd breakages, then it’s time to perk your ear to it and investigate, but if this was the only incident, I’d give benefit to doubt.

      1. Got it. That’s good to know that this incident is isolated. When I dropped off the bench, I found it weird the lighting case was low and the stem was long, but I didn’t think it would fall off.

        The unfortunate thing is that. The case was probably from 85 years ago when the house was built, and I let them know. I didn’t give them an earful, just to check around the house and tighten other fixtures that are also old, and to match the replacement as close as possible. They said they’d handle it.

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