Seller's markets, those areas in which there are few homes for sale compared to the number of available buyers, are experiencing record gains, but few are seeing the kind of bargaining that is going on in some of the hotter markets.

Bidding wars take place regularly in hot relocation markets such as San Francisco, Atlanta, and Dallas, but now Palo Alto, California can be added to the list. That's where a four-bedroom, 3,700 square foot home, listed at $2.2 million is the center of a bidding war, until a buyer upped the ante by $1 million over the asking price to $3.2 million. The same property had sold in 1989 for $1.4 million. That is the second time in the Silicon Valley region that a buyer has offered so much more than the asking price of a home, especially in the luxury market where buyers are few even in hot markets.

Agents and buyers in the area are stunned. Brokers are reporting steadily rising prices and a frenzied attitude on the part of buyers who seem willing to pay any price to get a home.

The news caused one buyer, a Palo Alto resident, to blanche. She and her family are looking for a larger home. " I guess we may have to pay more than we originally thought,'' she said, in an interview with the San Jose Mercury News.

Like most seller's markets, Palo Alto has a number of things going for it. One hour out of San Francisco, and part of one of the nation's hottest relocation areas, Silicon Valley, scenic Palo Alto appears to offer a convenient bridge for affluent commuters. It has the reputation for excellent schools, a family-friendly environment and an upscale downtown area.

The median home price is $650,000 and rising due to a lack of inventory for sale. A week ago, there were fewer than 35 unsold homes available in the city. Sixty two homes are under contract, but area brokers maintain that under normal circumstances, there would be twice as many homes available for sale as those under contract. Homes are selling quickly, in under a month, spurred by stock-rich buyers who are willing and able to pay large figures for the home they want.

In a seller's market like Palo Alto, there is a clear shift in power from the buyer to the seller. The seller kicks back and demands such things as high selling price, closing costs to be paid by the buyer, and concessions on repairs, terms and other aspects on the transaction. When multiple offers start to roll in, the seller is in a position to pick and choose which ones s/he wants to negotiate. Offers over asking price become more common. But in Palo Alto, the seller's market is a whole new ball game.

And you thought your seller was driving a hard bargain.