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Aaron N. Tubbs

Dragon chaser.

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In this market, setting a bid price is no small task.

Update: Let me elucidate.

So you are looking to buy a condo in southwest Fairfield County. You’re looking at a unit in a complex with 88 units. You know an identical unit (we’ll call this unit ‘A’) closed 5 days ago at price $X. You know that the unit you are looking at (we’ll call this ‘B’) came onto the market at price $X + 2000. You also know that A came onto the market at $X – 12,000 and rocketed up in a bidding war to $X. On the other hand, A had brand new appliances, a security system, and an intercom, whereas unit B is original equipment (circa 1986). Damn electric stoves.

So, the theoretical thing you do is say “ok, we know the market — this unit should move at $X less the cost of the new appliances, prorated and degraded to some reasonable level.” Let’s say that should be $Y = $X – 2,000. In a perfect rational market, this is the correct bid.

But, real estate in Fairfield county is not a rational market. Even though we were at $X a few days ago, $Y could well be $X + 2,000 now. So you try to reconcile by making an early offer at somewhere between $Y and $X, basically saying “I know this is good, because this and that” but the fear is that somebody else comes in and shoots a more attractive offer and you enter multiple bids and price hell, and pretty soon you’re putting down $X + 12,000 with a no mortgage contingency and your balls hanging out. So the real key in making the bid, if you really want the place, is making a nice high bid, say right at $X, knowing it’s overpriced, but saying “look, we know this is good, we’re here now, we’re flexible, and let’s make a deal.” But, even that could blow up in one’s face.

I think the real trick is house buying is like the worse financial markets — where emotions and feelings enter the equation (such as IPO float prices) … where one knows demand is crazy, supply is crazy, and trying to set the price is more art than science. As soon as that stuff starts happening, rational market behavior ceases to exist … or perhaps this is the very essence of rational market behavior, and I’ve got it all backwards.