Time to read [6 minutes]
- Bidding Wars Are Auctions And Winners Behave Differently Than Losers
- Chronic Shortage Of Listing Inventory Is Easing But Bidding Wars Remain Prevalent
- Nearly One In Five US Sales Sells Above The Ask
I have often told the story of our efforts to buy our present home three years ago in a Connecticut housing market devoid of listings. We beat 30 people and paid about 36% above the asking price, and I’m not embarrassed about it. Even now, Zillow says it’s still a good time to buy [gift link]. Ha. On a previous house, we were devastated after losing a bidding war to eight other people, despite having the highest offer – and that house was emblazoned with a two-story peace sign! However, the runner-up offered all cash but $25,000 less and in the end, their terms were better to the seller. Today, our Zestimate (which is a wildly inaccurate tool by definition), shows our home value is up 15% in three years. Being in the valuation business and having access to local data, I have been able to rationalize that we “only” overpaid by 15% (ha) back then and we got the perfect house for our stage in life. I kid you not, I think about how fortunate we were to land this home every day, but sometimes I worry there is something wrong with me because I have no cognitive dissonance about it. Paying above the seller’s ask has been a way of life for many buyers coming out of the pandemic, even as more inventory enters the market. The northeastern US remains chronically challenged by the lack of supply. There is something called the Winner’s Curse, a common phrase in the auction world that I became more familiar with because of a fascinating white paper released back in March 2025: The Winner’s Curse in Housing Markets.
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Local Evidence
Back in May, NAR indicated that 18% of homes in the US sold above the last asking price (my proxy for a bidding war). In the NYC metro area, sales outside the city in the surrounding counties, we observe bidding war market share in the 25% to 50% range. In other words, as many as one out of two sales sold above the last asking price in certain counties outside of NYC. Bidding wars in NYC tend to see a lower share of bidding wars than the surrounding suburbs. Manhattan is running about 5% while Brooklyn and Queens are in the 20% to 25% range, a little higher than the national results.
Winner’s Curse Definition And Explanation
According to Investopedia:
“The winner’s curse is a tendency for the winning bid in an auction to exceed the intrinsic value or true worth of an item. The gap in auctioned versus intrinsic value can typically be attributed to incomplete information, emotions, or a variety of other subjective factors that may influence bidders.”
A bidding war event is essentially an auction. Many of the bidders have lost out in previous auctions and want to end the protracted period of disappointment and get that home. That’s how we felt after losing the last war bidding war but presenting the highest offer. The phrase originated from Atlantic Richfield engineers who often observed poor returns when bidding for certain offshore drilling rights.
Final Thoughts
The Winner’s Curse paper compared homes sold via bidding wars and homes sold without bidding wars. They used 14 million single-family home sales in 30 states from 2000 to 2018. They found that the winners:
- Tended to have incomplete information or over-optimism
- Realized lower returns, for an average of 7% lower
- Had a 2% higher chance of defaulting on a mortgage
- Tended to stay for a shorter term, in contrast to conventional wisdom
- Represented the problem in the creation of wealth inequality
- Reflected an adverse impact on socioeconomically vulnerable buyers
While these results are eye-opening, especially the shorter stay, we still have no regrets, remaining naively devoid of cognitive dissonance because, apparently, its always a good time to buy [gift link].
The Actual Final Thought – Somehow A Tribe Called Quest cartoon mashup kinda nails the Winner’s Curse.
HGAR’s IMPACT: The Member Experience
I’m excited to speak at IMPACT: The HGAR Member Experience on September 29. I’ll be joining real estate professionals from across the region to explore what’s next in the housing market, economic opportunities and building community. Join me and be part of the conversation that’s shaping what’s next. Learn more and register.
[Podcast] What It Means With Jonathan Miller
The Sort Of Live From Hurricane Erin episode is just a click away. The podcast feeds can be found here:
Apple (Douglas Elliman feed) Soundcloud Youtube
Monday Mailboxes, Etc. – Sharing reader feedback on Housing Notes.
August 22, 2025: What Does The Stigma Of 666 Really Mean?
- Your material is second to none, but your stories are unlike others. You add humor.
- We do not have your kind of expertise on the west coast.
- Your word is gospel.
- The way you see most things is brilliant.
August 19, 2025: Billionaires’ Row Was Never A Fight
- Jealous. Hope you hit Henlopen City Oyster House and Big Fish!
Did you miss the previous Housing Notes?
Housing Notes Reads
- Why It’s Actually a Good Time to Buy a House, According to a Zillow Economist [Bloomberg]
- The Winner’s Curse in Housing Markets [Choi, Nowak, Smith, Tchistyi]
![[Podcast] Episode 4: What It Means With Jonathan Miller](https://millersamuel.com/files/2025/04/WhatItMeans.jpeg)
