Chic vs. Geek: Relative Bidding

What is a relative bid, and what do you think about this approach?

CHIC (PEARL)

I was asked this question just the other day by one of my friends who is in the market for a home. By making a relative bid, the buyer essentially tells the seller that they will commit to paying a certain amount above the highest offer the seller receives. Typically, the buyer sets a ceiling on this price at a level they can afford. While there is a lot of risk involved (see the Geek’s answer), in a hot market with limited inventory, a relative bid could be the best option to ensure that you get the house. But there’s also risk involved. If the seller has not received an offer as high as the cap on the relative bid, they could simply counter at that maximum price or use it as leverage to get more offers.

GEEK (KEVIN)

This is one of those areas where the Chic and I happen to agree. In multiple offer situations, sometimes the highest offer comes with the worst terms. If most of the offers on a property are bunched together, the highest bid could end up being a dog with a lot of fleas that the seller never would have taken in the first place. For example, a buyer could come in with a high dollar offer and terrible terms just to make sure they get the property. If another buyer made a relative bid on the same property, they could be on the hook for a higher purchase price than the seller would have accepted under normal circumstances. Remember: Bidding is never just about price. It's also about the rules of engagement.