What is a Bidding War?

Mary McMahon
Mary McMahon

A bidding war is a competition between buyers who wish to purchase the same thing and offer increasingly escalating prices to the seller. Bidding wars can drive the final price up beyond the value of the product and can be very dangerous for buyers even as they are immensely advantageous to sellers. Sellers may specifically price an object with the goal of sparking a bidding war to get a chance at a better price than they might have by asking a flat price and accepting the first buyer.

Retailers might engage in a bidding war as a way to increase customer interest.
Retailers might engage in a bidding war as a way to increase customer interest.

Bidding wars can arise over real estate, companies, and any other commodities that can be bought and sold. Sometimes they begin with an unsolicited bid, where someone approaches with an offer for something that is not for sale, and in other cases, something is put on the market and bids are invited. In a bidding war, people rapidly respond to bids made by other parties with new offers at higher prices, with the goal of appealing to the seller and successfully closing the deal. People may also attempt to sweeten the deal with favorable terms when placing their bids.

Two or more people can be involved in a bidding war. The seller usually tries to play bidders off against each other, keeping people apprised of new bids and encouraging them to up their own offers or drop out. Once the offers slow down, the seller will enter into a contact with the person offering the most favorable bid.

One problem that can arise with a bidding war is that people may be encouraged to increase their bids without thinking them through. Consequently, they may bid more than they can afford or more than they want to spend. To prevent this, people may be asked to pay a deposit to bid and to prove that they have the funds to support a high bid. People can also be subject to fines or penalties if they back out on an agreement after they have signed a contract for purchase.

For sellers, a bidding war can be used to increase the final sales price. Buyers may be enticed by the competition and can find themselves spending more than they initially expected. A skilled broker or dealer can assist with marketing something in a way that will attract bids, and with managing the bidding war to get the best price and close the deal as efficiently as possible.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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