{"id":185335,"date":"2025-10-24T11:33:37","date_gmt":"2025-10-24T17:33:37","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=185335"},"modified":"2025-10-24T12:25:35","modified_gmt":"2025-10-24T18:25:35","slug":"bidding-wars-and-why-investors-get-fooled-by-affordable-markets","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/bidding-wars-and-why-investors-get-fooled-by-affordable-markets","title":{"rendered":"Bidding Wars and Why Investors Get Fooled By “Affordable” Markets"},"content":{"rendered":"\n

A new study from the Rochester Institute of Technology, published in<\/span> Fortune<\/span><\/a><\/em>, analyzed 14 million home sales over 20 years across 30 states, and reached a resounding, but obvious conclusion: There are no winners in a bidding war (except for the seller, of course).<\/span><\/p>\n\n\n\n

Homebuyers who secured a property by coming out on top in a “highest offer wins” battle consistently overpaid by an average of 8.2%, and consequently experienced weaker returns over time. For <\/span>flippers<\/span><\/a> and landlords working on thin profit margins and <\/span>refinancing<\/span><\/a>, the loss of <\/span>equity<\/span><\/a> can have long-lasting ramifications.<\/span><\/p>\n\n\n\n

The Cost of \u201cWinning\u201d<\/span><\/h2>\n\n\n\n

One of the earliest lessons fledgling investors should learn is to \u201cnever fall in love with a house.\u201d However, real estate agents orchestrating bidding wars are counting on potential buyers doing just that\u2014to earn their clients the most money possible for their home and themselves a higher commission. <\/span><\/p>\n\n\n\n

What looks like a victory at closing often ends up translating into years of subpar performance, according to Soon Hyeok Choi, assistant professor of real estate finance at Rochester Institute of Technology, who worked on the report. She discovered that winners of bidding wars had annual returns 1.3% lower than comparable investors who stayed out of the fray. Equally, buyers who paid above asking price also had higher default rates\u20141.9% above average.<\/span><\/p>\n\n\n\n

Don\u2019t Be Fooled by Affordable Markets<\/span><\/h2>\n\n\n\n

The study\u2019s home base of Rochester, New York, was found to be particularly susceptible to bidding wars due to its affordability, which attracted investors and spurred multiple offers. The danger of such markets is clear: Just because they\u2019re affordable doesn\u2019t mean they’re good deals. Every market needs to be considered in isolation because ultimately, when it comes to selling, renting, or refinancing, an investor\u2019s competition is other nearby properties. <\/span><\/p>\n\n\n\n

Where Bidding Wars Are Likely to Occur<\/span><\/h2>\n\n\n\n

The frothy post-pandemic days of 2021 have long been in the rearview mirror. The bidding wars back then were created by a combination of <\/span>low interest rates<\/span><\/a>, high equity, and pent-up buyer demand, which cooled as markets subtly shifted back toward buyers. \u201cWe\u2019re seeing sellers becoming more flexible,\u201d reported the<\/span> Wall Street Journal<\/span><\/a><\/em> in February. <\/span><\/p>\n\n\n\n

However, despite higher interest rates impacting affordability, limited supply in specific markets has continued to stoke <\/span>bidding war<\/span> embers, igniting <\/span>into<\/span> fierce competition.<\/span> <\/span><\/p>\n\n\n\n

Zillow recently upgraded its<\/span> 2025 home price forecast<\/span><\/a>. Several smaller and medium-sized cities <\/span>are expected<\/span> to see substantial increases in value, fueled in part by supply struggling to keep up with demand, making these markets prone to bidding wars.<\/span><\/p>\n\n\n\n

Zillow found that home values were up from year-ago levels in 25 of the 50 largest metro areas. <\/span>The<\/span> top 15 metros<\/span><\/a> are expected<\/span> to see price increases <\/span>between August 2025 and August 2026<\/span>, <\/span>which will<\/span> likely <\/span>lead<\/span> to bidding wars.<\/span> These markets and increases are:<\/span><\/p>\n\n\n\n

    \n
  1. Atlantic City, NJ:<\/span><\/strong> 4.7%\u00a0<\/span><\/li>\n\n\n\n
  2. Torrington, CT:<\/span><\/strong> 4.7%\u00a0<\/span><\/li>\n\n\n\n
  3. Saginaw, MI:<\/span><\/strong> 4.6%\u00a0<\/span><\/li>\n\n\n\n
  4. Pottsville, PA:<\/span><\/strong> 4.4%\u00a0<\/span><\/li>\n\n\n\n
  5. Rockford, IL:<\/span><\/strong> 4.3%\u00a0<\/span><\/li>\n\n\n\n
  6. Kingston, NY:<\/span><\/strong> 4.3%<\/span><\/li>\n\n\n\n
  7. Concord, NH:<\/span><\/strong> 4.3%\u00a0<\/span><\/li>\n\n\n\n
  8. Knoxville, TN:<\/span><\/strong> 4.2%\u00a0<\/span><\/li>\n\n\n\n
  9. Hartford, CT:<\/span><\/strong> 4.1%\u00a0<\/span><\/li>\n\n\n\n
  10. New Haven, CT:<\/span><\/strong> 4%\u00a0<\/span><\/li>\n\n\n\n
  11. Hilton Head Island, SC:<\/span><\/strong> 4%\u00a0<\/span><\/li>\n\n\n\n
  12. Vineland, NJ:<\/span><\/strong> 4%<\/span><\/li>\n\n\n\n
  13. Fayetteville, AR:<\/span><\/strong> 3.9%\u00a0<\/span><\/li>\n\n\n\n
  14. Norwich, CT:<\/span><\/strong> 3.9%\u00a0<\/span><\/li>\n\n\n\n
  15. Youngstown, OH:<\/span><\/strong> 3.7%<\/span><\/li>\n<\/ol>\n\n\n\n

    The Aftermath of Post-Pandemic Bidding Wars in Different Real Estate Sectors<\/span><\/h2>\n\n\n\n

    Flattening rent growth is the enemy of overpriced real estate. That, however, has been the case with retail and mixed-use projects. In these cases, bidding wars, fueled by overoptimistic returns and low interest rates, mirrored single-family housing following the pandemic.<\/span><\/p>\n\n\n\n

    However, interest rates are now maturing in an entirely different market, and many borrowers have <\/span>been forced<\/span> to inject additional equity to refinance, according to <\/span>Forbes<\/span><\/a><\/em>. <\/span>Generally, retail<\/span>, <\/span>primarily when anchored by grocery chains<\/span>, <\/span>is expected to <\/span>experience<\/span> 2% higher lease rates, putting it in a good position.<\/span> <\/span><\/p>\n\n\n\n

    The same cannot be said for <\/span>multifamily<\/span><\/a> housing, as rents declined in some of the country\u2019s most prominent metro areas as of May, according to<\/span> Realtor.com<\/span><\/a>, due to an oversupply, with the<\/span> Sunbelt<\/span><\/a> particularly hard hit.<\/span><\/p>\n\n\n\n

    Strategizing a Bidding War as an Investor: How to End It Quickly<\/span><\/h2>\n\n\n\n

    If you\u2019re intent on getting a property and feel a bidding war is worth the risk, there are strategies you should employ to try and make the fight short, sharp, and ultimately sweet for you. <\/span><\/p>\n\n\n\n

    Waive inspections and <\/span>contingencies<\/span><\/h3>\n\n\n\n

    A seller might be more inclined to accept an offer from a buyer who isn\u2019t requiring an inspection or lender approval, since 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. <\/span>An all-cash offer usually wins the day over a slightly higher <\/span>offer<\/span> contingent <\/span>on financing<\/span>.<\/span><\/p>\n\n\n\n

    Give your offer an expiration <\/span>date<\/span><\/h3>\n\n\n\n

    If you have made the highest offer, give it an expiration date to encourage the seller to make a quick decision.<\/span><\/p>\n\n\n\n

    Remain flexible on the closing <\/span>date<\/span><\/h3>\n\n\n\n

    This<\/span> gives the seller time to pack up and move out at their own pace, which could be a clincher.<\/span><\/p>\n\n\n\n

    Know When to Fold \u2018Em: When You Should Walk Away From a Bidding War<\/span><\/h2>\n\n\n\n

    Stick to your MAO<\/span><\/h3>\n\n\n\n

    You\u2019ve likely heard of the maximum allowable offer (MAO) formula, commonly used by house flippers. <\/span>The MAO is 70% of the <\/span>ARV<\/span><\/a> (<\/span>after repair<\/span> value)<\/span>, <\/span>minus the cost of repairs.<\/span> So if your house\u2019s ARV is $100,000 and the repairs are $20,000, your offer should be $50,000. There\u2019s no point in violating that rule if your goal is to flip for a profit.<\/span><\/p>\n\n\n\n

    When a property can\u2019t pay for itself<\/span><\/h3>\n\n\n\n

    If you\u2019re buying for <\/span>the purposes of<\/span> holding and renting, factor in all expenses. In the worst-case scenario in a rapidly appreciating market, it\u2019s always best for a house to pay for itself. In that case, at least you can benefit from taxes and <\/span>appreciation<\/span><\/a>, even if the <\/span>cash flow<\/span><\/a> is negligible. <\/span><\/p>\n\n\n\n

    If these scenarios do not work, walking away is a safe bet. There\u2019s always another house.<\/span><\/p>\n\n\n\n

    Final Thoughts<\/span><\/h2>\n\n\n\n

    Bidding wars might make sense for a personal residence in an all-cash deal, as it\u2019s for personal use rather than business. However, as the Rochester study reveals, bidding wars are rarely a good idea for an investor.<\/span><\/p>\n\n\n\n

    Ideally, an<\/span> investor should time the market to be on the other side of a bidding war, as a seller.<\/span> Buying should be done in a buyer\u2019s market, when sellers are desperate to sell and can offer a discount.<\/span><\/p>\n\n\n\n

    The only scenario when a bidding war might be worth it for a buyer would be at an auction, when there\u2019s a good chance you might still secure a property at a discount that would allow you to flip or rent it at a profit. <\/span><\/p>\n\n\n\n

    The bottom line: When an agent\u2019s MLS note states \u201cMultiple offers: Highest and best only,\u201d it\u2019s usually time to walk away.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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