Anything valuable - art, antiquities, vintage cars - is sold at auction.
Buyers publicly compete against each other and bid up the price until an ultimate winner prevails. They're really exciting too (please no one hand my wife a paddle - Harris family Costa Rica trip coming soon as a result of our son's elementary school auction).
In real estate, auctions do happen…we call them “bidding wars.”
But there's one key difference - in real estate, the person conducting the auction - the listing agent - intentionally obscures what other buyers are willing to pay.
Listing Agent: “Thank you all for your offers. Your counter is…GIVE US MORE MONEY! Deadline Friday at noon. I won't tell you how high, by the way. Just pull a price out of thin air and pray! Also, don't call me. I for sure won't pick up.”
The term for this is a “silent auction.” It's how gift baskets are sold at charity events. But even then, you can see what the other interested parties are bidding on the clipboard…not in real estate!
For the most part, we're all just bidding blind.
The result? Buyers have no clarity, and they are overwhelmed and scared to overshoot the mark. Sellers end up leaving money on the table, and never know it. Everyone loses.
How many times does a losing buyer check Redfin a month later for the sold price and think “I would have paid that!” I think on most sales that's the case.
All buyers should be given the chance to make the highest offer, until no one is willing to go higher. “Going once….going twice….SOLD”.
There's no rhyme or reason why bidding wars are handled this way. Offers are not confidential - it's right there in the contract: “Buyer is advised that seller or listing agent may disclose the existence, terms, or conditions of buyer’s offer unless all parties and their agent have signed a written confidentiality agreement.”
The primary reason seems to be what's called “prevailing practice." It's just how it's done.
If pressed why they do it this way, listing agents will say, they want to be “fair.”
Fair to their other agents, but at great cost to the sellers and buyers.
Transparency and guidance in selling a home benefits both buyers and sellers. Buyers will happily heed guidance on what number to offer (and happily pay MORE to secure their dream home), and sellers won't unknowingly leave money on the table.
Sure, Mr. Seller's agent, you may miss out on the rare chance that a googly-eyed home buyer will profoundly overshoot the mark, but the greater risk (which we see way more with tight-lipped listing agents) is the risk of leaving money on the table.
So like all luxury goods, homes should be sold with transparency in competition; when we sell homes, we call each agent who has submitted, answer all questions, and help buyer's agents to guide their clients to the winning number. A tried and true strategy, we wish would be broadly adopted (it is by the best agents in the game).
There's a reason why Christie's and Sotheby's - two of the world's preeminent auction houses - also license their name to real estate brokerages. They know what's up.
