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Blind bidding in the Bay Area
By grinderman Follow Mon, 30 Jan 2012, 8:35pm 6,794 views 55 comments
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San Jose, CA
Buster says
At least in Kabul when you pay mansion prices you get a vast compound/mansion and plenty of budget left for your own army. Here you get a falling apart chicken shack on the wrong side of the tracks.
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iwog says
Except for the all-cash investors and speculators that make offers on places with no contingencies.
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Menlo Park, CA
PockyClipsNow says
I do mean exactly that.
There is no free market without a government to protect it. Period.
The free market exists only when price signals are truthful. Without verified bidding on houses, all we have is continuous fraud, no free market at all.
You want free as in "free to commit fraud by lying about other bids". I want free as in "free to buy or not, depending on truthful information".
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PockyClipsNow says
You dont need govt involment regarding blind bidding. Just best practices amoung parties... no more than a 10 point guide printed on a piece of paper which informs parties on how to conduct an open transparent transaction.
It would be no different than what occurs in commercial transactions. Why is it you dont see multiple blind offers in commercial leases.. cause they have a solid open process.
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Patrick says
under the law (see below), we dont have an open market for a fair sale, nor are the parties fully knowledgable/informed, but we do have undo influence. And if you want to add further.. prices are affected by special or creative financing.
Not what I would call valid process of conducting a deal.
Commonly, the definition set forth for U.S. federally regulated lending institutions is used, although other definitions may also be used under some circumstances:
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."
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Patrick says
Today yes, in the past no.. there were no fictional multiple bids when i bought. None of my friends and contacts experienced this before either.. but we never had bubble like this before.
If all these multiple bidders were real.. we certainly wouldnt have seen price drops because there would have been a supply of other buyers ready to buy.
But as we have seen, that didnt happen. Therefore it was all fiction.
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Menlo Park, CA
thomas.wong1986 says
Please describe that process. Do bidders on commercial property openly publish their bids?
I don't want government control of any prices. I just want honest reports of bids, not fraud.
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Los Angeles, CA
What Patrick describes is the typical big-gov democrat nighmare.
A law is passed with 'good intentions' by people who are clueless in that field. "All bids shall be publicly available on the internet for 10 days prior to selecting winning bid on real estate." or something.
THen you will get the 'fake bid from bro in law' AND mother in law to run up the price!
So people complain and law #2 says "all bids must have documented down payment and 15 other rules".
It all ends in soviet/cuba style nightmare where only the crooks,smarties, and gov employees can 'get by' and regular folks are left out of the game and lies rule the land (hey just like capitalism! lol )
Also I would point out here EBAY is the most efficient market yet. AND still filled with fake bids (from sellers bro in law) and a cancelled bids and also sometimes the seller wont honor the winning bid (it happend to me, he listed it CHEAP and i won then he said 'it broke, sorry have to cancel auction' lolz)
So I think Patrick is really 'wanting people to be honest' and thats just impozzible, sorry.
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Menlo Park, CA
We already have the Soviet style nightmare:
http://patrick.net/forum/?p=1208247
The 99% does all the work, yet a tiny elite get all the benefits, because they control the government with their money.
You didn't answer how the commercial property blind-bidding system is any better than for residential property.
I assume that means you support allowing fraudulent bids on commercial property too.
The problem is FRAUD. Theoretically, it's already illegal, but in reality, if you can pay lobbists in DC, somehow the laws get bent just for you.
We should most definitely have public bidding on real estate.
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Menlo Park, CA
thomas.wong1986 says
How do you know? Maybe everything your realtor told you was a lie designed to maximize his commission.
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Los Angeles, CA
Public bidding would be a joke with probably even MORE room for fraud.
If I am a listing agent instead of lying about fake bids and saying 'trust me' if I could SHOW YOU fake bids on the internet with real names (and u could call them up and ask them if they are real bids!) then I could get even more $ for a crap shack in menlo park.
Think about it. The realiitors will abuse public bidding to thier advantage - there is no other scenario possible especially when you look at the $$ spent by NAR in DC.
Again, look the mess ebay is as an example.
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Berkeley, CA
.Patrick says
I am not talking about ' phantom ' bids . I think that can happen in any property market the world over . It is illegal but it is something that you can watch out for and deal with.
Here is what I am talking about . Recently there was a house for sale asking $ 610,000 . Our buyers agent sat us down to write up a bid . They would not give us a figure on what would be a good bid or not . After some debate we made an offer of $ 626,000 . Our bid was rejected and weeks later we discovered that the house had been sold for 631,000 .
What is strange to me is that this system seems to work against both buyers and sellers . The seller will never know if I was willing to up the bid to $ 635,000 , $ 640,000 or $ 650,000 . Who knows where the price would have gone if the other bidders were really keen on the house .
On the other hand maybe I could have been the only bidder and could have cost myself $16,000 more than I needed to pay .
Now we have spotted another house that we really like . It is offered at $ 629,000 . But what to offer ?
It seems to me that realtors are operating a cartel and are engaged in open price fixing in the Bay Area .
To answer you question , both the Irish and British property bidding is just done over the phone . Both my experiences were of selling in a hot market . The Irish one was really nuts with prices going up by the day at one stage .
Most houses in Australia are sold by auction with the auction taking place outside the property either in the garden or if there is no space on the street and people just bid action style by raising their hand . You caan see who is bidding and what the price is . I have even seen commercial property sold like this . Once I stumbled into a auction of my locals banks building .
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Los Angeles, CA
I am finding in the last few years many americans are hamstrung in business (make poor choices maybe for example they trust a RE agent) by thier naive belief in fairness, open government, equal treatment, etc.
Also I have a theory which I cant prove that recent immigrants to america from communist/former communist countries reallllllly fit in VERY well here and do better than most of my lame high school friends. They somehow 'get it' that everything is fraud from one perspecitve or another, everyone is out for #1, and you gotta lie on the governenment paperwork since 'that is what they want'. etc.
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PockyClipsNow says
I've run into that perspective of the United States several times while talking to people who work outside the United States. One person told me that maybe he needed to change his business approach to be more "American" by doing what he considered lying.
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Los Angeles, CA
Well all humans are the same, its just that some people are naive and trusting.
Think of the dopes that fall for Nigerian scams.
Now think of these very same people buying a house! (they do!!!!)
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grinderman says
fake offers are common in the US... and in Canada.
The secret's out on phantom bids
http://www.thestar.com/News/GTA/article/256968
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Patrick says
There just wasnt. I low balled they countered, and we met in between. Many I know did the same. Never heard of multiple offers during when i bought. I suggest you survey people who bought their homes in the 70s, 80s to early 90s.. I cant speak what happened after 1998 or 2000. The world went insane afterwards.
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Patrick says
First come first serve, asking is published you negotiate and close the deal.
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PockyClipsNow says
You dont need big govt mandate on this, just good leadership. Just change the process on buying and communicate it to the public. Have an open buying process published on internet, advertised on radio and local TV stations until many start to follow the recommendated practices.
And no the realtors wont like it ...
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grinderman says
I'll bet you have amazing teeth.
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Lafayette, CA
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1sfrenter says
Never seen it, never heard of it. Perhaps you're talking about the foreclosure auctions where all sales are as is and there's no inspection period.
I've done several cash transactions recently and the sellers agent doesn't even ask. He/she just puts in the automatic 7 day inspection period.
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Bellingham Bill says
" If California could cut ties with the rest of the Union, we'd do OK. We've got ag, we've got tourism, we've got entertainment, and we've got tech. "
Please do!! The rest of the country is tired of bailing your housing bubble out. Californians were 75% of the problem. Keep your tax dollars, they still are not enough to make up for the home equity withdrawals that have made California think it is so wealthy and special. Hey Cali, your homes are still double what they should be and will be. Good luck.
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Patrick says
That is a wise observation.
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... and once more, I'd be curious to know why you're even considering buying a house- especially one priced at such high levels- when you know you will be moving out of the country anyway. To me that makes absolutely zero sense.
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I made a couple of offers during the boom (pre 08), and my offer was not the highest. For these houses, the sale was published a month or two later, at a price higher than I offered. It's possible that the realtor personally bought the house in order to reinforce the illusion of multiple offers, but it seems unlikely.
of course, now is a different situation, and if one makes an offer on a house that's been on the market for 90 days, and another one suddenly pops up, that's suspicious. But during the boom, true multiple offers did happen.
Edvard2 is right about buying though, if you're going to stay here 5 years or less, buying is probably not worth it. You'll pay 6% for the sale, that's $36k right there for a $600k house. To me, the biggest benefit of owning is being able to stay in a place for many years and modify it as I see fit. But if your plan is to move in 5 years, that benefit is not relevant to you.
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PockyClipsNow says
The horror, the horror. Yes, it is very scary. And sad.
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Malkovich's website
grinderman says
I bid on two houses in 2004 and actually found out the sale prices were *lower* than my bid. My guess is that the buyers discovered some undisclosed problems and thus the price was lowered.
Or perhaps it was a dual-agent sale and my bid was not even presented to the seller but rather put in the circular file.
These days a lower selling price than a higher offer could be the result of a cash sale with no contingencies.
Open bidding or closed bidding, to me, does not make a difference.
What does concern me is the outright fraud of phantom bids or bids disappearing and not making it to the seller.
Not sure what the solution would be to this.
Perhaps just a notarization of all bids presented and, after the sale, the list of these notarized bids along with the identities of those who presented the bids? But even then you could have people hired to specifically drive up the price - notaries and documentation be damned.
Without question it is a sketchy way to navigate the biggest monetary transaction of a typical person's life.
We just need to get rid of realtors altogether and move to some sort of flat-fee system. Heck, the buying realtors don't do anything aside from meeting you at the property and letting you in to see it. It's not like they are driving you around in their car anymore. All the research is done online by the buyer these days. If you do make an offer they plug the info into Zipform and 10 minutes later the offer letter is produced.
6%? For what?
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edvard2 says
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While your reasons and story sounds compelling to me it still doesn't really make sense to outright buy a house, especially in a new and unfamiliar area and especially when the prices are at a premium compared to the rest of the country. I guess you have to understand my perspective. My parents and whole family still lives in North Carolina. My parents own 14 acres- which is quite a bit of land. They live in a pretty decent 2 story home and have a heated pool, a 2 story workshop my Dad built, an apple orchard, 2 somewhat decent cars. Neither are anything other than squarely middle class. I make twice as much as they do combined. Add my wife in and we make 4 times as much as they do combined. The grand total value of their property is $170,000 US dollars. That compared to what that would get you in the Bay Area: Exactly nothing or maybe, just maybe a crappy foreclosed 1 BR condo. Their hosue would easily be multiple millions of dollars if it were in the Bay Area.
My family also has an interesting background. They immigrated here from Ireland and the UK as well as Germany and none had any money whatsoever, My Grandad's Father died in a fire when he was a boy and he and his mother and 2 sisters moved from house to house as soon as the rent was due. In later life he bought house after house, fixed them up, and sold them. Perhaps because of his experiences as a boy. He told my Grandmother he never wanted to be poor again.
My other grandparents weren't well off either. But that doesn't mean that their experiences or other members in my family determines what I do or decide to do. I moved here from a significantly cheaper part of the US and having that perspective in that I could literally move back and buy a neat old house for cash outright and for all sense of the word semi-retire gives me real pause about the exorbitant costs of the Bay Area. If I were to use family history as a measure I'm sure most would think that 500k+ for an ordinary house was absolutely nutty. But we all have a gauge of what value is.
It really comes down to dollars and cents. Simple as that. But we all have our own reasons for making choices and no decision is either right or wrong. My financial adviser says that most of investing is about doing what makes you feel comfortable. In any regard good luck with what you all do.
* Not financial advice
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return with property in Ireland and Australia .
edvard2
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44 Mon, 6 Feb 2012 at 8:52 pm Quote Like Dislike Permalink Share
While your reasons and story sounds compelling to me it still doesn't really make sense to outright buy a house, especially in a new and unfamiliar area and especially when the prices are at a premium compared to the rest of the country. I guess you have to understand my perspective. My parents and whole family still lives in North Carolina. My parents own 14 acres- which is quite a bit of land. They live in a pretty decent 2 story home and have a heated pool, a 2 story workshop my Dad built, an apple orchard, 2 somewhat decent cars. Neither are anything other than squarely middle class. I make twice as much as they do combined. Add my wife in and we make 4 times as much as they do combined. The grand total value of their property is $170,000 US dollars. That compared to what that would get you in the Bay Area: Exactly nothing or maybe, just maybe a crappy foreclosed 1 BR condo. Their hosue would easily be multiple millions of dollars if it were in the Bay Area.
My family also has an interesting background. They immigrated here from Ireland and the UK as well as Germany and none had any money whatsoever, My Grandad's Father died in a fire when he was a boy and he and his mother and 2 sisters moved from house to house as soon as the rent was due. In later life he bought house after house, fixed them up, and sold them. Perhaps because of his experiences as a boy. He told my Grandmother he never wanted to be poor again.
My other grandparents weren't well off either. But that doesn't mean that their experiences or other members in my family determines what I do or decide to do. I moved here from a significantly cheaper part of the US and having that perspective in that I could literally move back and buy a neat old house for cash outright and for all sense of the word semi-retire gives me real pause about the exorbitant costs of the Bay Area. If I were to use family history as a measure I'm sure most would think that 500k+ for an ordinary house was absolutely nutty. But we all have a gauge of what value is.
It really comes down to dollars and cents. Simple as that. But we all have our own reasons for making choices and no decision is either right or wrong. My financial adviser says that most of investing is about doing what makes you feel comfortable. In any regard good luck with what you all do.
* Not financial advice
Great post .
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iwog says
It certainly happens (quite often) here in my area (not CA.) You don't have to but the bank may favor the offer with no inspection. I guess the house prices here is low enough that people (like myself) don't care inspection.
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Patrick says
I tend to agree with Patrick from a theoretical point. For example, stock auction has a central exchange countertop that people know the bidding price (kinda of) which protects bidders. Derivatives (e.g., CDS) do not have it so they tend to get abused. However, it's hard to build a (honest) central exchange system for housing transaction (unless you bid on street publicly.)
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grinderman says
Yes, though it's not law by any means. Sellers certainly have the right to let bidders know the others' bids. Sellers in a multiple-offer situation, are usually better served by keeping things blind.
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Menlo Park, CA
gregpfielding says
Conversely, the optimal situation for a buyer is to be the sole bidder on an unlisted property.
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Sorry Greg , I managed to mess up the quote tags in the above post .
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Let's see he has piles cash and has timed every market around the world perfectly. I doubt it.
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Only fools rush in? Buyers again ensnared by bidding wars
April 1, 2011
http://www.boston.com/realestate/news/blogs/renow/2011/04/only_fools_rush.html
My favorite is the broker at the open house who told buyers, all eager to see a house - in Burlington, I think - that sorry, he was now only taking "back up offers."
But how do we know those offers are real? Could this just be another broker ginning up the process with a few "phantom buyers?" Does it really have to be this way?
No, says the Real Estate Cafe's Bill Wendel.
Some basic ground rules are needed to rein in such chicanery, bolstered by an online bidding system in which buyers can be assured they are competing against other legitimate buyers, not phantoms, Wendel contends.
To that end, he's renewing his call for an online petition to get state and federal regulators to crack down on these used-car sales tactics and set the stage for a shift to online bidding platforms.
What's at stake here? Wendel blames blind bidding wars for stoking the runaway prices we saw during the bubble years, both here in Greater Boston and beyond.
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Blind bidding is incompetable with establishing a true market value (as defined by laws)...certainly isnt fair since it does not promote buyer being "prudent and knowledgable" and promotes influence by "undue stimulus".
REAL ESTATE the definition set forth for U.S. federally regulated lending institutions is used, although other definitions may also be used under some circumstances:
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."