[Sorry if this is a duplicate post. The first time didn’t seem to go through.]
Although I’ve read on this site and elsewhere that regular bidders sometimes engage in “bid chilling” or “bid rigging” (to artificially reduce winning bids), I’ve also heard that regular bidders will sometimes “over-bid” on a property for the purpose of hurting or blocking a competitor, such as a newcomer. Has anyone come across this problem? I’d appreciate any suggestions about how to minimize that risk.
Over-bidding for the purposes of intimidation is less common that you might think. Has it happened? Yes. Will it happen again? Likely. But with regularity … No. Most pros at the steps loath overpaying (to the point where it’s truly unprofitable) for a property and that’s enough of a negative motivator to minimize that tactic. Now, I’m sure you’ll hear plenty of anecdotes about pros bidding up newbies … I’ve heard/seen pros (who were not acting “professionally” IMHO) flat out telling newbies who’ve bid on a good one (go away and never come back) “I’ll just bid you up.” But when the profit was all but gone, I’ve seen the same “full of bluster” pros curse under their breath and back away from the bid. Let me repeat my first sentence - over-bidding for the purpose of intimidation is less common than you might think! There are plenty of colorful stories about surrounding steps buying but don’t let these dissuade you … the opportunities are there for those who prepare.
Danny, thank you for your reply and many other helpful posts. Your comments make a lot of sense, but I wonder what is considered “truly unprofitable”. For example, if a bidder would normally bid no more than 20% below market value, I wonder if they could bid substantially more (but still less market value), while telling themselves (or an investor client) that there is still some profit, depending on how they calculate it (e.g., how they account for their own time and the risks of unanticipated problems)? Of course, what I’d prefer is for any bidders to simply bid whatever they normally based on the property itself, rather than trying to make some other bidder pay more or go away. But perhaps there is nothing that can be done to reduce the likelihood of such actions.
Hi Jo … good question. Speaking for myself … before I bid, and after full research and pre-auction checklist, I have a pre-set maximum allowable offer (MAO) written down. No matter what. I won’t bid above my MAO. That figure is not a set profit % as this can vary depending on the property. A newer lower-priced (easier to resell) unoccupied property, that I’ve seen on MLS with photos (or one I’ve been inside) will be a lower-risk property (20% profit “objective” would be fine) versus an occupied property with no photos other than satellite view and an owner who has a history of judgments and litigation. The latter property would be one that I would want to make sure I have greater profit margin (e.g. MAO that would give me 40% “potential” profit) as my re-sell price guesstimate could be way off and/or costs to gain possession (e.g. lawyers fees) might rise. So my MAO could range from a low of 20% “potential” net profit (low-risk property) to a high of 40% net profit objective (high-risk property). But for me it doesn’t matter who is bidding against me (newbie, pro, zombie or Donald Trump) … it’s all about the MAO.