why do bidders not communicate to stop driving up prices so high? Personally I cost another bidder approx 50k on a property since I went to my max and the bidder had more firepower. If the bidder had of said to me at the beginning “look I’m going to X and here is proof” then I would have bailed out much earlier and saved them their €€
I believe some people are trying this already putting bids in of say €310380 which to me means they are willing to bid a max of 380 so if you can’t beat that then don’t bother. Of course then you run the risk of Mr P.Hantom if the EA cops it.
exchange numbers at viewings or perhaps a website where you can register your interest in a property and meet the other bidders to have a chat.
Its an interesting idea and worth thinking about. Some potential problems I would see:
(1) It would be open to abuse by phantom bidders who could agree to drop out of a bid in exchange for cash.
(2) People don’t always bid up to their max on each property; for example they may get dispirited if each time they bid there is a counterbid in within a few hours. So sometimes incremental bidding might help the “poorer” bidder to get the property.
(3) A bidder might be prepared to go a few hundred euros above their “max” if he knows it will get them the property.
But am sure there could be work-arounds to all this.
Several times my ea friend gets asked by someone intending to bid on a property “what do I have to bid to get the place” & my friend’s response is “make your max bid up front”. The bid generally comes in at, say, €15k/€20k below the asking price with a “that’s my max, I’m not going any more”. So my ea friend says “ok, so just to be clear, that’s your max bid & you’re not going any more”. He says, “that’s just what I said”. My ea friend says “ok, so if I get a higher bid, I’m not to come back to you”. He says “no, I didn’t say that, of course you’ve to come back to me”. My ea friend goes “oh, ok”, and privately “wtf”. Just last week this exact scenario happened. The first bidder ended up the highest bidder at €20K above the asking. If he had offered the asking up front as my ea friend suggested, he’d have the house.
As we keep saying, the biggest problem is with the constrained supply. You keep hearing about “as long as there are 2 bidders …”
As supply comes on, the converse can apply. If you have a choice in properties you can play the “as long as there are 2 houses …” card. Ideally being able to say to a vendor that:
there are 3 possible houses
I am inclined to go for one of the other 2
but you, Mr. Vendor, are in with a chance if you offer me this house at a more interesting price.
It really does work but only as long as you have some reasonable alternative options.
Actually an open viewing is a great way to get to know prospective bidders. If you are interested in a particular area, you will tend to come across the same people again and again. There is no harm in being friendly. You could even become house-hunting “buddies”.
Actually it is. The OP asked why people don’t try to signal other bidders when buying a property. The answer is that it’s not their optimal strategy.
You can suggest whatever type of auction you want but it doesn’t change the fact that a bidders optimal strategy is to bid up to their valuation of the property (or in the case of auctions like Vickery where you only get one bid, you bid your valuation).
You brought up a Vickery, where you can’t signal other bidders, so not sure how that answers the OP’s question.
I share your question, Barney. That is only your optimal strategy if you HAVE to get that house, no matter what the price.
If you decide you simply want a house of that type but not necessarily this one, it would not be in your interest to bid up the price of one particular house. In such a thin market, EAs can point to precedence in pricing. If you cooperate in raising the price of one house, you raise the bar for all subsequent properties coming on the market.
In that scenario, if it is already clear that you are not going to be successful for this particular house, it may be in your interest to make sure that the ultimate buyer pays as little as possible for it. Even to the extent of clearly making it known that whatever interest you had in it before, you are no longer in the running.
It’s the conclusion that John Nash came to, as did Avinash Dixit and Barry Nablebuff in their book Art of Strategy and it was behind William Vickery’s design of a Vickery auction - design a system where bidders don’t have to be strategic, an auction where you don’t need to know how many other bidders are involved or what they are doing, your dominant strategy is to always bid your valuation.
No it’s not, it’s always your dominant strategy
(very short summary)
If you believe a house is worth 100k then at auction you bid up to 100k (unless other bidders pull out before that, then you stop obviously), if it goes over 100k then you stop. If you bid up to 90k and someone gets it for 91k then they’ve just got a house for 9k less than it was worth to you, you should have bid 92k etc all the way up to 100k.
This holds for sealed bids and Vickery auctions. If you bid less than your valuation, someone else could bid more than you but less than your valuation and get the property for less than the property is worth to you and less than you were prepared to pay. In all cases, if someone else bids higher then they get the property but you don’t care, you don’t want it at a price above your valuation.
Esselte, I’ve just discovered you and I are brothers on some level. I have Dixit and Nalebuff on my desk too.
The original premise of this thread was not about the optimal strategy in Vickery auctions. It was about collusion between bidders.
To continue your example above, if it is clear that your rival is prepared to pay up to 100k on a house that you would not pay more than 91k for, a valid strategy of collusion would be to withdraw your bid and not even compete if the price dropped below 91k. If your rival could be sure of your cooperation, he could bid (say) 81k and split the savings with you. This 81k price would contribute to setting a new lower precedential rate in houses in the area. He would have a house for 86k and you would have cash of 5k to apply to your deposit on a different house in a now cheaper area.
This is clearly immoral but it demonstrates the hazard to EAs of allowing potential buyers to be alone together during house viewings or in the same room at auctions.
I recently bid on a property, ours was the highest offer (a little above the asking) the vendor left us hanging on so we withdrew our offer, however the EA is still quoting our offer when in fact there are currently no offers on the property. How can this be stopped?
If you’re the only bidder then you start low, you bid up to your valuation you don’t open with it, unless it’s a sealed bid. If it is a sealed bid and you win and find out you were the only bidder then yes, you could have gotten it for less but you still only pay your valuation of the property i.e. an amount you were happy to pay. In sealed bid auctions bidders have far less information hence you have to make a bid you’re happy to pay.
Of course you still care when the bid goes above your valuation and nothing is stopping you from going higher but emotion doesn’t change you optimal strategy. If emotion drives you to bid above your valuation you need to realise that it is not your dominant strategy and you risk paying more than you feel the property is worth.
There may be other houses out there and there’s nothing to stop you bidding on several but that doesn’t affect your optimal bidding strategy on each. If you had bids accepted of 100k, 110k and 60k on each you need to decide which you prefer (which is subjective). Presumable if you had bids of 100k, 110k and 59k accepted, then, on a financial basis you’d go for the 59k one.
The vendors valuation will affect what they accept but it shouldn’t affect your strategy.
Well you did open with “Yes but that’s neither here nor there” when my post actually answered the OP’s question. Bidders don’t signal each other as it’s not their optimal strategy.
We like to argue so I assumed you were signalling you were up for another one. One of the problems with signalling, people can misread them or read ones that aren’t there at all