Bidding Wars and Why Investors Get Fooled By “Affordable” Markets

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A new study from the Rochester Institute of Technology, published in Fortune, 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).

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 flippers and landlords working on thin profit margins and refinancing, the loss of equity can have long-lasting ramifications.

The Cost of “Winning”

One of the earliest lessons fledgling investors should learn is to “never fall in love with a house.” However, real estate agents orchestrating bidding wars are counting on potential buyers doing just that—to earn their clients the most money possible for their home and themselves a higher commission. 

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—1.9% above average.

Don’t Be Fooled by Affordable Markets

The study’s 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’re affordable doesn’t 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’s competition is other nearby properties. 

Where Bidding Wars Are Likely to Occur

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 low interest rates, high equity, and pent-up buyer demand, which cooled as markets subtly shifted back toward buyers. “We’re seeing sellers becoming more flexible,” reported the Wall Street Journal in February. 

However, despite higher interest rates impacting affordability, limited supply in specific markets has continued to stoke bidding war embers, igniting into fierce competition. 

Zillow recently upgraded its 2025 home price forecast. 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 prone to bidding wars.

Zillow found that home values were up from year-ago levels in 25 of the 50 largest metro areas. The top 15 metros are expected to see price increases between August 2025 and August 2026, which will likely lead 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 in Different Real Estate Sectors

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.

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

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The same cannot be said for multifamily housing, as rents declined in some of the country’s most prominent metro areas as of May, according to Realtor.com, due to an oversupply, with the Sunbelt particularly hard hit.

Strategizing a Bidding War as an Investor: How to End It Quickly

If you’re 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. 

Waive inspections and contingencies

A seller might be more inclined to accept an offer from a buyer who isn’t 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. An all-cash offer usually wins the day over a slightly higher offer contingent on financing.

Give your offer an expiration date

If you have made the highest offer, give it an expiration date to encourage the seller to make a quick decision.

Remain flexible on the closing date

This gives the seller time to pack up and move out at their own pace, which could be a clincher.

Know When to Fold ‘Em: When You Should Walk Away From a Bidding War

Stick to your MAO

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

When a property can’t pay for itself

If you’re buying for the purposes of holding and renting, factor in all expenses. In the worst-case scenario in a rapidly appreciating market, it’s always best for a house to pay for itself. In that case, at least you can benefit from taxes and appreciation, even if the cash flow is negligible. 

If these scenarios do not work, walking away is a safe bet. There’s always another house.

Final Thoughts

Bidding wars might make sense for a personal residence in an all-cash deal, as it’s for personal use rather than business. However, as the Rochester study reveals, bidding wars are rarely a good idea for an investor.

Ideally, an investor should 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 when a bidding war might be worth it for a buyer would be at an auction, when there’s a good chance you might still secure a property at a discount that would allow you to flip or rent it at a profit. 

The bottom line: When an agent’s MLS note states “Multiple offers: Highest and best only,” it’s usually time to walk away.