Did you win a bidding war? The ‘winner’s curse’ means you likely overpaid

[ad_1] Winners of every kind of auctions are inclined to overpay and that very same draw back is skilled by patrons who conquer the competitors in bidding wars for New York Metropolis actual property.

Jonathan Miller, president and CEO of appraisal agency Miller Samuel, explored the phenomenon of the “winner’s curse,” a bent for the successful bid to exceed the worth of an merchandise, in a current version of his Housing Notes publication.

“Paying above the vendor's ask has been a lifestyle for a lot of patrons popping out of the pandemic, at the same time as extra stock enters the market,” he wrote.

He cited a March 2025 white paper, "The Winner's Curse in Housing Markets,” which in contrast gross sales of U.S. properties involving bidding wars to those who offered with out. Among the many findings: Winners tended to have incomplete info or over-optimism and realized decrease returns, a median of seven % decrease

Successful a 30-way bidding battle Miller has first-hand expertise with paying above ask: Three years in the past, he prevailed in a 30-way bidding battle, paying about 36 % over the asking value for a Ridgefield, Connecticut, home inbuilt 1755.

Dropping a previous bidding battle for a renovated barn in Redding, CT., had made him extra decided to supply the successful bid on the Ridgefield property. Even actual property professionals get emotional about shedding out on a dream dwelling.

That dedication is a typical situation for many bidding battle winners. Miller described it as an “irrational, emotional drive to win the bid."

“Lots of the bidders have misplaced out in earlier auctions and need to finish the protracted interval of disappointment and get that dwelling. When shoppers are confronted with shedding one other bidding battle, they go in additional aggressively,” he stated.

Additionally fueling bidding wars is a standard technique for sellers and their brokers to cost listings near market price or a little bit bit decrease—the bidding battle subsequently encourages patrons to supply a premium for the property.

“Significantly if stock is absent, patrons don't have any selection in the event that they need to win the bid,” Miller stated.

Bidding wars low in NYC The market share of bidding wars in NYC is at present a lot decrease in comparison with the encircling suburbs, in keeping with Miller’s information for the Elliman Report, which tracks actual property information (however median costs are a lot larger).

Within the second quarter, bidding wars had been concerned in about 25 to 50 % of gross sales in counties simply exterior NYC, however solely 7.1 % of all Manhattan offers. Manhattan patrons paid a median of 6.1 % over the past asking value (the vary was 3 to eight %).

For Brooklyn, bidding wars had a 22.5 % share final quarter and successful patrons paid a variety of three to eight % over asking. In Queens, bidding wars took a 23.8 % share and successful patrons paid 2 to five % above ask, Miller stated.

‘Loser’s curse’ can be actual Mike Fabbri, an agent at The Company, lately represented patrons in two offers that concerned bidding wars, each for Higher East Aspect, two-bedroom models that had been priced round $2 million. They went for five to 10 % above asking.

He stated that the winner’s curse is an actual phenomenon—many winners marvel in the event that they overpaid, and the other, the loser’s curse, is equally prevalent: Consumers who don’t bid excessive sufficient really feel discouraged in regards to the one which bought away.

A lot is dependent upon how bidding battle successful patrons are utilizing the property. “In case you plan on flipping it in 5 years, sure, it’s doubtless you overpaid,” Fabbri stated. However for bidding battle winners who plan to stay within the property for 10 to fifteen years, that’s not the case. For these patrons, the “worth of the condominium is what the client is keen to pay,” he stated.

When all-cash wins the prize Lisa Ok. Lippman, a dealer at Brown Harris Stevens, lately represented the vendor of a five-bedroom co-op on Fifth Avenue that was asking $12 million.

“We had three money patrons vying for the condominium and after two back-and-forths with every purchaser, the vendor accepted an all-cash provide for $13 million,” Lippman stated. “All three patrons had been intrigued by the property, particularly the views, the fabulous location, and measurement of the condominium itself.”

Bidding all money is an efficient technique to crowd out patrons who want financing and money offers are reshaping the NYC actual property market. Within the first 5 months of 2025, 60 % of all Manhattan offers closed with out financing, the very best share citywide, in keeping with a new examine from PropertyShark that appears at purchaser profiles.

Lippman’s recommendation to a purchaser who will get right into a bidding battle: “I at all times inform them to ensure to bid the very best value they need to pay in order that if they do not get the condominium, they aren't disillusioned that they didn't provide barely extra, but when they do get it, they do not have purchaser's regret considering that they overpaid.

“For sellers, I at all times inform folks to cost precisely the place we predict it would promote, that is one of the simplest ways to probably have a number of folks bidding,” she stated.

First-time purchaser panic First-time patrons are inclined to panic after they discover themselves in a bidding battle, stated Vickey Barron, a dealer at Compass.

“If they've simply sufficient for a down fee on their dream dwelling, they’re nervous. You’re placing a blindfold on them and asking them to throw a dart at the hours of darkness,” Barron stated, referring to a request for “highest and finest” presents.

She encourages these patrons to do what it takes, inside a price range, to get to a successful bid. “You don’t need to lose a dream dwelling over $50,000,” she stated.

Nonetheless, the client with the very best provide is just not at all times the one who finally ends up with the property.

“It’s not unusual for purchaser primary to drop out,” Barron stated. Purchaser’s regret is one cause; discouraging townhouse inspection studies are one other.

In case you’re shopping for in a co-op, value is certainly one of many concerns—you must meet the constructing’s monetary requirements and get authorised by the board.

One other technique Barron typically suggests to purchasers is to make a better provide earlier than a bidding battle occurs. This might appear to be making an preliminary bid $50,000 over ask on a property {that a} itemizing agent says is seeing loads of curiosity.