Photo: Terrence Antonio James/Chicago Tribune

As bidding wars, or what I call crowdsourcing the price have become increasingly common in our heating—up real estate market, both buyers and sellers have been caught wondering what to do. So today, instead of answering one reader’s question, I’m asking agents the kinds of questions that have popped up all spring and summer on bidding wars.

If I put my house on the market at a price of X dollars and a bidding war takes it up to X-plus 3 percent, shouldn’t I have priced it higher in the first place, and maybe gotten even more, like X-plus 5 percent?
I’ve put this question to several agents in the past few weeks, and their clear consensus has been that asking more doesn’t work. “You have to be very careful where you price it,” says Dreamtown agent Suzy Thomas.“You don’t want to come in [above] the market.” There are a couple of reasons: Thanks to the proliferation of real estate data on the Internet, most buyers have good radar for over-priced homes, and they’ll stay away from a property whose price seems too high. And Thomas points out that “there are still properties that aren’t selling immediately or [with] multiple bids. You don’t know if yours will.”

Thomas is one of several agents who recounted anecdotes about ambitious sellers pricing their homes two notches up from recent comparable sales and seeing the property sit while homes with less aggressive prices moved fast. Koenig & Strey Real Living agent Teresa Cosantini says that most buyers and their agents can tell when a property is “priced tightly, and they flock to it. If you price it too high, everyone’s going to sit and wait for it to come down.”

Some hot neighborhoods like Lake View and Lincoln Square are seeing more bidding wars than others. If I’m a buyer and I know we’re likely to get into a competitive bidding situation, how should I prepare?
“You can start out looking [at homes] below what you can afford so you have room to bid,” Thomas says. This doesn’t mean you have to look at homes priced at half or three-quarters the amount you can afford. Look at homes whose asking prices are five or eight percent below the maximum you feel comfortable paying (and are pre-qualified to pay).

There aren’t any reliable exact figures, but my general observation is that most bid-ups on non-distressed properties are landing at a final price of no more than five percent above the ask. One Old Town sale is pending at what I’m told  is about 30 percent over the asking price—the exact sale price won’t be released until the deal closes—but that’s a rarity, not the norm on conventionally sold houses.

Bidding on distressed properties—foreclosure and short sales—often takes prices up higher than that.

How should a seller handle competing bids?
“It’s very important to be ethical and, obviously, legal,” Cosantini says. She counsels sellers that there are two ways to go: Pick the one offer that seems most appealing—whether that’s because of price or closing terms—and negotiate with those buyers only. Or go back to all bidders and give a deadline by which they should all turn in their highest and best offer. “What you can’t do is negotiate [separately] with three different deals, because the danger is you sell it to three different people and you have a lawsuit on your hands.”

Clara Prouty of Better Homes & Gardens Gloor Realty prefers the latter option. “There’s less likely to be bitterness” if losing bidders feel they at least got a shot against the competitors, she says.

Any rules of behavior for buyers or sellers who get caught in a bidding war?
Play fair, says Prouty. “It’s important to create good karma, especially on a place you’re going to call home.”