The dollar auction game: Swedish edition

It's an interesting "fun" fact that lowball offer, when it comes to buying a home and bidding process in Sweden, is in its literal translation called shame bid. So, as a buyer, you are supposed to be ashamed if you by any chance consider offering certain amount bellow asking price. There is a word in Swedish for this too, dare I say — galghumor — and I’ll leave it there.

Delulu is the solulu

Obviously.

Because on the other hand though, there is no shame at all in asking hilariously high amount of money for a property in the same area — or worse exact same building — with condos in exactly same condition where real sales happen after months of advertising and at prices which are 10 000 kr per square meter or even 16 000 kr per square meter — for what I've seen so far — lower than initial asking price. To put it into perspective, this can mean discrepancy of 660 000 kr between what’s asked and what apartments sell for.

This level of sellers’ disconnect from reality that literally lives next door to them reaches the levels where, as a buyer you (hopefully) start seriously question your own sanity and sanity of everyone involved in the process.

As with pretty much everything in the overregulated Kingdom of Sweden, home ownership has many different layers and forms. When it comes to apartments, almost all of them are tenant-owned, meaning that you only buy yourself a “right to reside” in an apartment and basically a share in a building, which is managed as a business entity by housing association. Yes, it is that complicated as it sounds and it gets worse. You might just want a place to live and you might think that you only need to worry about your personal economy and purchase power, but there you are, buying a share in something that has its own management board, board members, economy, accountant, financial plan, short-term and long-term maintenance plan and subsequently it’s own loans. It’s your sole responsibility as a buyer to verify and check financial reports, maintenance schedule and economy health of housing association because whatever is going on there will ultimately end up being paid by you. Any debt they have is unambiguously your debt that you should add on top of your own mortgage. If you think you can manage several percentages of interest increase, think again and recalculate — if interest rates go up for you they will go up on housing association’s loans too — 1% change in interest rate upward can mean significant difference in monthly expenses on a very short notice — several thousands of crowns per month.

Yet somehow, nobody feels a tiny bit bothered with it as if they have no personal stakes in it at all.

Let’s add conflict to the interests

And put the faith in the rigged process while you are at it.

I’m not sure if anyone sells their apartment themselves or to what extent is that even possible, but real estate agent will do the job for you and take the cut of whatever deal you get. Sure, how they (should) operate is, no surprise there, heavily regulated. Agents are supposed to act as neutral brokers between sellers and buyers but the amount and type of complaints the relevant overseeing bodies receive on this matter tell a different story.

It doesn’t take university professor in economy to understand that selling the property for what it might be really worth is bad for business while feeding the delusions of sellers is pretty much in line with the chance for higher provision.

Ethics and personal integrity are very fluid concepts and not very good pillars to build an industry on, one might conclude.

I’ve seen one Swedish show on Viaplay years ago. Original title was “Husköp i blindo”, which I freely translate as “Blind house purchase” and it was exactly about that. I watched that show around the time after I purchased my very first apartment in Sweden and dreaded over 750 000 kr (approx. 75 000 €) in mortgage which turned out to be hilariously low mortgage for what people so easily take on here and max out without even blinking and to what goal.

This was obviously a TV show, built on specific format with specific purpose, not a course in properties market, but it still made me very aware of how disturbed and rigged the game of residence purchase in Sweden really is. One thing it didn’t do though, it didn’t make me feel any better or at ease about my own mortgage at all. It didn’t take long for me to understand why.

The dollar auction — in action

That is where delusions reach their full potential.

Level of comfort with debt in Sweden, which I wrote about in another context, is so high that the calculated payoff period until 2018 was 140 years. Since then, annual mandatory repayment amount was introduced (either 2% or 1% of borrowed amount, depending how much of a property purchase is financed through mortgage) and total repayment period is capped at 105 years.

With such nonchalant approach to immense amount of debt, no wonder people bid on their “dream residence” like tomorrow will never come and then struggle to cover their monthly expenses if one variable changes — sick leave, parental leave, unexpected life circumstances, job loss.

Most people selling are very often also buying at the same time, so this makes things even more disturbing. On one end you set shameless expectations that nobody even tries to challenge — and those who do are a disgrace to human kind and shame is called upon them. On the other end you do everything to avoid shame being called upon you so you play the game too and overbid. As a bottom line, everyone effectively end up being loser and overpaying for the next thing.

As much as entire charade might make much more sense in some different era, today it’s hardly sustainable and definitely makes no sense. Sweden might be unique in its overregulation but it’s hardly unique in terms of human behaviour and drivers behind it. These days you will most likely have to spend same amount of money for buying apartment in Sweden as for buying comparatively similar apartment in Bosnia & Herzegovina too which is insane.

The internet told little men that they can earn some money on properties so they started to behave like real estate moguls except they lack everything compared to a mogul — including a property worth whatever they ask for it. Now every little man plays this game. While some indeed get lucky to turn around some pocket ROI thanks to accidentally impeccable timing, geography and other factors they have zero influence over, the rest still exist in a state of blissful ignorance of being poorer than ever.