It bears repeating that there is no "what the house is worth" in the abstract. If you somehow know that other bidders will pay at most $X for it, then of course you'd never bid $X * 1.2 -- you'd bid $(X+1). And if lots of people are (or can be made) emotionally attached to a house and pay an apparently unreasonable amount, that is what it's "worth."

> It bears repeating that there is no "what the house is worth" in the abstract.

No, but there is a 'what was selling price for similar homes in this area' price in nearly every specific.

Listing prices are intentially set to be much lower than selling prices. Selling prices are the real prices, listing prices are fiction.

People paying 20% over listing usually means that listing was 20% under selling. Boring! And not financially imprudent!

People paying 20% over average selling in the area, for an equivalent home is what raises my eyebrows as financially imprudent.

> Listing prices are intentially set to be much lower than selling prices. Selling prices are the real prices, listing prices are fiction

I feel like this is only true in irrational housing markets, or at least those that have a chronic undersupply of housing .

In my local non-insane market I went through two different purchases where I successfully bid less than asking.

That's gone since the pandemic though since everyone tried to move out of cities and work remote in my town.

It is basically true for sellers markets, because it gives more advantage to the seller. being a sellers market doesn't make it an irrational housing market.

During a buyers market, prices usually approach the list or go under.

This reflects the fact there is how much the house is worth to the seller, and how much it is worth to the buyer, and neither of these are the sale price.

It's not "emotionally attached", it's that it's been impossible to buy a house for a while if you're not willing to pay more than it will appraise for. You'll repeatedly lose to buyers who will do that, with cash offers to boot.

This has been true even in many cities that aren't trendy, and have been building housing like crazy for a decade.

Maybe you could think of it like a PE on a growth stock - people expect the house to go up due to inflation of cost of goods as well as all the money that was printed - they are willing to take a punt on the house value in the future, similar to many stocks.

There's also sunk cost in the effort of finding a house you want and reluctance to keep looking.

In what market? In the SF bay area 99% of houses appraise, even if they go 50% or $0.5m over asking

Boring Midwestern City that's not even a 3rd-tier tech hub. Other boring Southern city that's also not even a 3rd-tier tech hub. Buyers are having to take on the risk of having to cover any extra over appraisal in cash, consistently, while that used to be rare (and, yes, usually for "I am super invested, emotionally, in getting this particular house" reasons).

My unremarkable suburban house in a boring city that's been building housing constantly and extensively for the last 10 years, is up like 25% in value over the last 2 years. We thought, based on extensive experience in this market, that we were already paying a bubble-induced premium of 15-20% when we bought it (possibly no longer true—thanks inflation). WTF.

I think Inflation scares are a big part of it - at least it was for me.

If inflation is 8.5% and a mortgage is 3%, the bank is paying me to buy a more expensive house.

At the same time, If I hold and wait to buy, my savings are evaporating while the price goes higher.

I think the appraiser is doing you a favor by not appraising it for the contract price in this case. Why would you want to overpay for a house and have to cover the financing shortfall yourself? Especially in a market that traditionally has slow RE price appreciation.

Let the cash buyers suffer the losses. You'll thank yourself later.

You're assuming that the deal doesn't go through if it doesn't appraise.

In my market nearly all winning offers have waived the appraisal contingency

Not assuming that at all. I'm saying that if the appraisal doesn't go through, then the lender won't cover the remainder of the purchase price, and then the buyer will have to make up the difference out of his/her own pocket. At that point, I'd bail, because the appraiser is raising a red flag.

But since you mention it, in the slower market being discussed here, I would definitely not waive an appraisal contingency.

> At that point, I'd bail, because the appraiser is raising a red flag.

The point is, in a lot of markets, if you bailed on offers over this in the last couple years, you wouldn't be winning any bids in the first place, and wouldn't have been able to buy a house at all. The winning bids include guarantees that the buyer will cover the difference. If you won't do that, you'll lose to an all-cash offer from someone who will. If you're lucky, you won't be competing against superior offers that also waive all contingencies.

I have no idea where all these people are coming from with hundreds of thousands in cash and the ability to cover several thousand more on top of the appraisal value, but they seem to be involved in damn near every sale the last 2ish years. Given how many are OK waiving inspections and such, I have to assume they're institutional buyers who can spread that risk around, not individuals who could be ruined by that kind of thing.

Something seems a bit off, then, because if the market is appreciating, then the appraisers should be taking that into account. As another commenter said, they were certainly doing that in hot West Coast markets like SF and Seattle. Both houses I purchased (each in those locations) appraised at the contract price, and I bought them both within the last 7 years.

They do, but it lags. If prices are going up fast enough, given the way these things are determined, it can easily be the case that damn near every house isn't appraising at what it sells for.

The "solution" to this, in the run up to the '08 crisis, was for appraisers to "help out" by fudging their figure to make it match the sale price. I know this because a real estate agent whose husband was a loan officer, told me so. "I know they were just trying to help out with these new regulations, but it's had the unintended consequence that appraisers can't fudge their numbers slightly higher to match an offer that's only a couple percent above the natural appraisal, like they used to". LOL, yeah, the exact thing they were trying to accomplish was an "unintended consequence". Talk about not being able to understand something because your paycheck depends on it.

Possibly some appraisers in at least some markets have figured out ways around this, and are back to fudging numbers. I dunno.

It comes down to what the appraiser is really saying with their appraisal. Are they saying that in today's market this is what the house could go for or are they predicting the future value outside of a bubble

“Appraised at contract price” tells you how a bit about how grimy that process (that you’re paying for) is.

My appraiser (on a refi) was walking around the house with me and basically asked what I thought the place was worth. That was what it appraised for. (The contract price on an original sale has the same property: what the buyer thought it was worth.)

Ideally those are tethered, but the appraisals didn’t give me a great sense of independence.

If appraisals were arranged and paid for by lenders, I think appraisals would become a lot more honest. But most lenders these days will only perform due diligence to the extent Fannie Mae/Freddie Mac require (and they already have a lot of requirements, which is why the underwriting process is so maddening), so the onus is really on the backers to require appraisers have some sort of fiduciary duty to them.

Counterpoint: as home prices keep climbing, many of the kind of things that would be caught by a home inspection become less and less financially relevant. When you're buying a million dollar house, 20K for a new roof is in the noise

sure, the appraiser is always providing the buyer a service by giving them an accurate appraisal (more information is better).

If the buyer chooses to proceed, this can be a financial disadvantage reducing access to a highly leveraged loan.

> It's irresponsible to bid 20% over what the house is worth . . . emotionally attached

If you are young it can be perfectly sensible to bid far more for a home you love. An “overpayment” is paid over many years of happy living, which can be a worthwhile trade.

Living in a cheap economically sensible shithole for too many years is a bad idea, unless you have no other choice financially. The problem is making sure you buy a home that makes you happy. Overcapitalisation is sensible if you can afford it, and if you truely do get valuable pleasure from living in your home.

Yes, do take care to avoid the mistake of buying a home and getting chained into a situation you end up hating.

Tell me you're in real estate without telling me you're in real estate.

I think most people are better off just renting until this madness blows over. God knows I am much better off for having rented and plowing my money into investments for about a decade before I bought my place.

Houses keep up with inflation over the long run, while stocks have returned ~ 7% after inflation. If housing is an investment, it's a poor one, and you should invest only what is absolutely required to have what you need not want.

Ha ha! I completely loath real estate, and I think I am an engineer type on the spectrum. https://news.ycombinator.com/newsguidelines.html

I think you are committing the error I am trying to point out: don’t treat your living requirements 100% as an investment.

That said, your living choice always has an investment decision component, because most of us need one roof over our head. If renting, you are shorting the home ownership market (a renter owns zero bedrooms but needs one bedroom). Making the decision to rent is either (a) betting against the real estate market (shorting), or (b) betting that one can make better returns through other investments.

The deeper point is that we should try to optimise for our internal joy, and nobody should measure their success only in metric dollars.

"Price to Entice" is a very real thing where I live. It's basically a way of getting your listing seen by more people, and increasing the chances of a bidding war pushing up the final sales price.

They set the price well under market in order to generate interest and visits. Next, in the same time interval multiple people bid, and you get a bidding war. Alternatively, price it at what you want it, and let it sit however long it takes. For hot markets, the former is what is done, in the US at least

If you think the house will sell for $1.01M, you should absolutely list it just under $1M (so it hits the screens of shoppers who are only looking at $700K-1M houses).

And you get more simultaneous bids. If one prices it high for the long term and prefers patience, there'll be sporadic bids and eventually low-balls.

Which is exactly what the "ask below" is trying to get you to do; you act differently (emotionally) in a bidding war than in a price negotiation.

I don't think it has to be emotional at all.

There is what the house is worth to the seller, and what it is worth to the buyer, and the sale price is always somewhere in between.

It is just taking advantage of an information asymmetry to get the sale price closer to what it is worth to the buyer.