If there is one thing I have learned in more than 30 years of real estate investing, it is this: emotion is the enemy of profit. Nowhere is that more obvious than in real estate bidding wars.
A new study from the Rochester Institute of Technology analyzed 14 million home sales over 20 years. The conclusion was simple. There are no winners in a bidding war except the seller. The data showed that buyers who win bidding wars overpay by an average of 8.2 percent and earn 1.3 percent lower annual returns compared to similar investors who avoid them.
I did not need a study to tell me that overpaying kills returns. But it proves something every serious investor needs to understand: if you have to win a bidding war to buy a property, you are already paying too much.
Why Bidding Wars Kill Returns
Most bidding wars have nothing to do with logic. They are designed to trigger fear of missing out and force emotional decisions. When an agent writes “multiple offers, highest and best only” in the listing, they are telling you one thing: we want a feeding frenzy.
Here is what the study revealed:
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Winning buyers overpay by 8.2 percent on average
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They experience 1.3 percent lower yearly returns
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Their loan default rate is 1.9 percent higher
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They lose equity faster if the market softens
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They take on more refinancing risk due to low loan-to-value cushions
For investors, that last point is a big deal. Equity is your protection. Overpaying destroys equity from day one.
The Bidding War Trap in “Affordable” Markets
One of the most dangerous myths in real estate is this: “If the market is cheap, it must be a good deal.” Not true.
Affordable markets actually attract more bidding wars, especially from new investors hunting for “cash flow deals.” The study used Rochester, New York as an example. It is an affordable market, but investors pile into the same neighborhoods chasing the same returns. Prices get pushed up, and deals become emotional instead of financial.
Never assume low prices equal good deals. Only the numbers tell the truth.
Where Bidding Wars Are Heating Up Again
Even though the frenzy of 2021 has cooled, low inventory in certain cities is bringing bidding wars back. Zillow recently raised its 2025 home price outlook and listed small and mid-sized markets most likely to see rising competition.
Top 15 markets likely to see bidding wars through 2026:
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Atlantic City, NJ – 4.7 percent price growth
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Torrington, CT – 4.7 percent
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Saginaw, MI – 4.6 percent
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Pottsville, PA – 4.4 percent
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Rockford, IL – 4.3 percent
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Kingston, NY – 4.3 percent
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Concord, NH – 4.3 percent
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Knoxville, TN – 4.2 percent
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Hartford, CT – 4.1 percent
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New Haven, CT – 4.0 percent
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Hilton Head Island, SC – 4.0 percent
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Vineland, NJ – 4.0 percent
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Fayetteville, AR – 3.9 percent
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Norwich, CT – 3.9 percent
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Youngstown, OH – 3.7 percent
If you invest in these metros, sharpen your discipline. Competition will increase. So will emotional mistakes.
Bidding Wars Are Not Just in Residential
This problem is not limited to single-family homes. After the pandemic, I saw commercial investors behave the same way. Cheap debt made bad deals look good. People chased buildings based on future rent projections that never materialized.
How to End a Bidding War Quickly if You Must Compete
I am not saying you should never compete on a deal. Sometimes competition is unavoidable. But if you must enter a bidding war, you should be strategic and unemotional.
Here are ways to end a bidding war fast:
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Make a clean offer with minimal contingencies
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Use short deadlines to force quick decisions
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Stay flexible on closing timelines
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Use cash if possible
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Avoid emotional bidding language
Speed, clarity, and certainty often beat the highest price.
When to Walk Away
A bidding war should never push you outside your investment criteria. Walk away if:
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The property goes above your Maximum Allowable Offer (MAO)
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The cash flow is negative without appreciation
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The property cannot pay for itself
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Debt assumptions do not work
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Exit strategies are weak
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Your only reason to continue is emotional
There will always be another deal. There will not always be another chance to protect your capital.
Final Thoughts
The best investors do not chase deals. They evaluate them. Bidding wars create chaos and pressure buyers to make fast emotional decisions. That is never a smart investing strategy.
If you want to protect your returns, follow these rules:
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Do not overpay
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Do not buy based on hope
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Let the numbers make the decision
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Know when to walk away
In real estate, money is made on the buy, not the sale. Smart investors buy with discipline.
Free Resource
Before you buy your next property, study how real operators analyze deals. I built a free guide that explains the exact criteria we use inside MC Companies to evaluate a property before we buy it.
Download: What MC Companies Looks For in an Apartment Deal
