Less 'Blind' Bidding?

By Dave Fratello | November 13th, 2013

Dave's been working on an offer for what seems the umpteenth bidding war of 2013, and a novel concept crossed our desks here.

In the news now is a possible change to the bidding process for Japanese professional league baseball players who wish to come to the USA and play for the MLB.

Wait, what's the connection to Manhattan Beach real estate?

It's this: US baseball teams are upset about the "blind" bidding process used to get access to top Japanese players. Right now, the way US teams get the "right" to negotiate with Japanese players is by paying a hefty fee to the Japanese team that a given player is locked up with.

The US teams must submit blind, sealed bids – typically multiple millions of dollars – as to how much they're willing to pay the Japanese team just to speak to the player.

Blind bidding like this, wherever you find it, is no fun for the buyer.

In a multiple-offer situation in real estate, for instance, you never know on the first round, or any later rounds, how much, exactly, other buyers might be offering – or even how many other qualified buyers are in the mix. To "win," you might have to pay quite a bit more than the second-place finisher was ever willing to pay.

Facing a comparable problem, now MLB wants to change the process with regard to the Japanese "posting system," as the player-bidding process is known.

The (proposed) solution, which seems brilliant: The top bidder would still "win" and secure the right to negotiate with the player, but the winning bid amount would become the average of the top two bids.

So, if one team bids $20 million to negotiate with a player, and the second-place finisher bids $10 million, the "winner" pays $15 million, meaning that team won't "overpay" by $10 million, but by $5 million. It's somewhat less unfair – literally, $5M less unfair than blind bidding in this example. (The example here rhymes with a real-world case involving Dice-K [pictured], in which the top two bids were separated by $11M.)

Sure, an open auction with all parties transparently engaged would be the most fair to buyers. 

But this notion, averaging the top two bids, is less awful for the US team "buyers" than totally blind bidding. And better for the "seller" (the Japanese team) than a totally open auction.

So imagine a real estate world in which "bidding wars" still exist, but by some rule, regulation or gentleman's gentle person's agreement, the highest bidder still gets the property, but at somewhat less cost than that party's own maximum bid. You tie the final deal price to the second-highest price offered, average them out, and you have first-position buyers who know they have not overpaid drastically – just enough to win.

Nonsense! comes the response. The existing "blind" system for real estate bidding wars delivers the best price possible for the seller. If that winning buyer pays vastly more than anyone else would have, that's great for the seller! You can't mess with that!

And hey, legally, listing agents can't agree to something that harms the seller's best interest. Are you really going to force sellers to choose a specific party, and/or take less money?

But what about buyers? Don't we all need them to make this system work?

Don't buyers' agents have the same responsibility to buyers, to help them succeed in acquiring their target properties, without overpaying? So shouldn't buyer's agents be willing to angle for some variant on this new MLB-Japan policy?

OK, it's all a flight of fancy, to be sure. Thanks for walking down the lane with us.

We're not burned out on bidding wars – we've won quite a few. But when it doesn't pan out, you feel for the people who do not succeed. It's a lot of work for everyone, not to mention the emotional investment, but in the end there's just one property at stake. And so from the finish line, for most, it's on to the next one.

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