Competition in Real Estate: The Risks of Competition

Real Estate is a competitive business, not only for the Real Estate agents, but also for the clients that we serve. Buyers often find themselves in competition with other buyers. Listings are in competition with each other to attract buyers. So it is not uncommon to fall in love with a home and find that you are in competition with one, or more, offers.

There are obviously risks when competing for a home in this situation. As a buyer it is useful to understand what you are getting yourself into. Here is a likely scenario.

Scenario 1 Agent Lee shows Mr. and Mrs. Smith a listing at 123 Anystreet. They immediately fall in love with the property and decide they want to put in an offer on the property.

Agent Lee draws up the offer with Mr. and Mrs. Smith back at his office. While drawing up the offer he receives a call from listing Agent Guy. Agent Guy informs him that two offers have already come in and the offers will be presented that evening.

Agent Lee informs Mr. and Mrs. Smith that in order to realistically win the competition that the should improve there offer by removing all of there conditions and increasing there offer price.

Competition in this instance eliminates negotiations. The offer with the fewest conditions and the best offer price is going to win this competition. How much risk are you willing to assume in this situation?

As a buyer you need to consider that you may be accepting certain negative features of the home. Once the offer has been made you have obligated yourself to follow through on it. Offers with no clauses or warranties leave the potential buyer unprotected.

If you have an unconditional offer on a property and your financing does not match what you need to purchase the home then you have a legal issue on your hands. You have signed a binding legal document that states you will purchase the home, whether you have the funds or not.

As a buyer you need to consider the risks and weigh that against your desire for the home. Do the potential risks outweigh your immediate desire? If so then you may wish to reconsider competing for the property. Often your desire will win over the inherent risks involved.

The copyright of the article Competition in Real Estate in Buying/Selling a Home is owned by Joel Nash. Permission to republish Competition in Real Estate in print or online must be granted by the author in writing.

Aug 27, 2006 7:08 PM

Jan Wickens :

Joel,
I am glad to see that people are still competing for real estate somewhere. I am an owner of a RE/MAX agency here in the states and although your scenerio was happening quite often here just a year ago, this year we are in desperate need of buyers. As an owner and agent, we explain to the buyer that they are at risk of losing the home they really want and that they should increase their price, what are they willing to pay for the home they love? Often they are willing to pay more than the listing price, we always encourage home inspections and if they are a cash buyer, that greatly reduces the chance of losing their dream home. How would you describe the market that you are currently in?
Thanks, maj

Aug 27, 2006 8:30 PM

Joel Nash :

I recognize the need for buyers. Our listing inventory here is growing rapidly and there is limited competition for listings.

This fact has caused many buyers to be more selective. Listings are taking longer to sell and buyers are adding more and more conditions to sales contracts.

We are obviously experiencing a sales slump in my area. Over-all sales are down almost 20% from last years states. There seems to be very little hope of a quick rebound. Listing prices are beggining to stablize and correct from the rapid inflation of the last couple of years.

Obviously as salespeople we benifited from the increased competition, through increased sales and quicker inventory turnover.

I always appreciate hearing that a brokerage encourages ethical real estate practices and I would be glad to refer business to your offices as a result.