A new study from the Rochester Institute of Technology, published in Fortuneanalyzed 14 million home sales over twenty years in 30 states and came to a resounding, but obvious, conclusion: there are no winners in a bidding war (except the seller, of course).
Homebuyers who secured a home by coming out on top in a “highest bid wins” battle were consistently overpaid by an average of 8.2%, and therefore experienced weaker returns over time. For flippers and landlords operating on thin profit margins refinancingthe loss of equity can have long-lasting consequences.
The cost of ‘winning’
One of the first lessons novice investors must learn is “never fall in love with a house.” However, real estate agents who orchestrate bidding wars are counting on potential buyers to do just that: get their clients the most money for their home and themselves a higher commission.
What seems like a win at closing often translates into years of underperformance, said Soon Hyeok Choi, an assistant professor of real estate finance at the Rochester Institute of Technology, who worked on the report. She found that the winners of bidding wars had annual returns that were 1.3% lower than comparable investors who stayed out of the fray. Similarly, buyers who paid above asking price also had higher default rates: 1.9% above average.
Don’t be fooled by affordable markets
The study’s home base, Rochester, New York, proved particularly susceptible to bidding wars because of its affordability, which attracted investors and led to multiple offers. The danger of such markets is clear: just because they are affordable does not mean they are good deals. Each market must be looked at individually because ultimately an investor’s competition when it comes to selling, renting or refinancing is other nearby properties.
Where bidding wars are likely to happen
The frothy post-pandemic days of 2021 have long been in the rearview mirror. The bidding wars of the past were created by a combination of low interest rateshigh equity and pent-up buyer demand, which cooled as markets subtly shifted back toward buyers. “We see that sellers are becoming more flexible,” reported the Wall Street Journal in February.
However, despite higher interest rates impacting affordability, limited supply in specific markets continues to increase bidding war embers, ignite inside fierce competition.
Zillow recently upgraded House price forecast 2025. Several smaller and medium-sized cities are expected to see substantial increases in value, fueled in part by supply struggling to keep up with demand, making these markets susceptible to bidding wars.
Zillow found that home prices in 25 of the 50 largest metro areas were higher than year-ago levels. The top 15 metros are expected see price increases between August 2025 and August 2026, which will probably pipe to bidding wars. These markets and increases are:
- Atlantic City, NJ: 4.7%
- Torrington, CT: 4.7%
- Saginaw, MI: 4.6%
- Pottsville, PA: 4.4%
- Rockford, IL: 4.3%
- Kingston, NY: 4.3%
- Concord, NH: 4.3%
- Knoxville, TN: 4.2%
- Hartford, CT: 4.1%
- New Haven, CT: 4%
- Hilton Head Island, SC: 4%
- Vineland, NJ: 4%
- Fayetteville, AR: 3.9%
- Norwich, CT: 3.9%
- Youngstown, OH: 3.7%
The aftermath of post-pandemic bidding wars across real estate sectors
A flattening of rental growth is the enemy of overpriced real estate. However, that has been the case with retail and mixed-use projects. In these cases, the bidding wars fueled by overly optimistic yields and low interest rates mirrored the post-pandemic single-family housing boom.
However, interest rates are now maturing in an entirely different market, and many borrowers have done so been forced to inject additional equity to refinance, according to Forbes. Generally retail, especially if it is anchored by supermarket chains, is expected experience 2% higher rental rates, putting it in a good position.
The same cannot be said multi-family housing as rents in some of the country’s most prominent urban areas fell from May, according to Realtor.comdue to oversupply, with the Sunbelt particularly hard hit.
Strategies for a Bidding War as an Investor: How to End It Quickly
If you’re planning to acquire a property and feel a bidding war is worth the risk, there are strategies you can use to try to make the fight short, sharp, and ultimately sweet for you.
Waiving inspections and unforeseen circumstances
A seller may be more inclined to accept an offer from a buyer who does not require an inspection or lender approval, as inspections are often a ploy to lower the price and mortgage approval is not always guaranteed. If you are bidding against a homeowner, chances are they will want to get a mortgage and an inspection. An all-cash offer usually wins the day over a slightly higher price offer possibly about financing.
Give your offer an expiration date date
If you have made the highest offer, give it an expiration date to encourage the seller to make a quick decision.
Stay flexible at closing date
This gives the seller time to pack and leave at their own pace, which can be a deciding factor.
Know when to fold them: when to walk away from a bidding war
Stick to your MAO
You’ve probably heard of the maximum allowable bid (MAO) formula, which is often used by house flippers. The MAO amounts to 70% of the ARV (after repair value), minus the repair costs. So if your home’s ARV is $100,000 and the repairs are $20,000, then your offer should be $50,000. There’s no point in breaking that rule if your goal is to make a profit.
When a home cannot pay for itself
If you buy for the purposes of keep and rent, take all costs into account. In the worst case scenario, in a rapidly appreciating market, it is always best if a house pays for itself. Then you can at least benefit from taxes and benefits valuationeven if the cash flow is negligible.
If these scenarios don’t work, walking away is a safe bet. There is always another house.
Final thoughts
Bidding wars can make sense for a personal home in an all-cash deal because it is for personal use and not business use. However, Rochester’s research shows that bidding wars are rarely a good idea for an investor.
Ideally one Investors must time the market to be on the other side of a bidding war as a seller. Buying should be done in a buyer’s market, when sellers are desperate to sell and can offer a discount.
The only scenario where a bidding war might be worthwhile for a buyer is at auction, when there’s a good chance you can still snag a property at a discount, allowing you to sell or rent it out for a profit.
The bottom line: When an agent’s MLS note says, “Multiple Offers: Highest and Best Only,” it’s usually time to walk away.
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