Do Buyers Overpay When Offers Compete? The Winner's Curse, Explained

If you win a property against competing offers, that doesn't automatically mean you overpaid for the property. When people use the term "winner's curse", it means the competition for the property was so fierce that the winning offer exceeded the buyer's expectations. In Dubai, this distinction matters. The real question is whether or not the buyer crossed a defensible maximum offer set before the competition began.

What is the winner's curse in a property sale?

The winner's curse is the risk that the winning bidder has made the most optimistic value estimate of the asset and thus has paid more than the property was worth. The winner's curse is most commonly observed in common-value auctions, where bidders estimate the same underlying value using different information and assumptions. Although investors will have different reasons for buying a property, they all have access to the same information about the property's legal and physical status. Recent DLD transactions, achievable rent, service charges, building quality and condition, and resale demand will impact the property regardless of who buys it. The same risk applies when buyers compete on a public offer board such as OpenOffers. It emerges when a buyer treats optimistic assumptions as facts or abandons their analysis once competition heats up.

Why do buyers overpay when offers compete?

Open competition reduces the time buyers have to think about a purchase. When you know others are offering against you, your focus shifts from buying a home to being the last person standing. It's natural instinct to want to win.

The time already spent reviewing documents and arranging financing can make it feel better to stay in than to walk away. Those are sunk costs, and they can cause you to offer irrationally. Overpaying can also be baked in before the countdown even starts. Your price ceiling may be built on the best-case scenario: the best available rent, the best comparable sales, no vacancies, and very little needed for repairs.

Market value and value to the buyer are different

The question “did I overpay?” cannot be answered by a single portal listing or valuation report. Buyers should separate three types of value.

Asking prices shown on Property Finder or Bayut do not mean sales are actually closing at those prices. Completed DLD transactions give a better indication, but buyers still need to adjust those values for the specific unit. For example, two one-bedroom units in JVC may have different justifiable prices due to differences in floor plan, views, service charges, and layout. An owner-occupier can rationally pay more for an apartment than a yield-focused investor would. Any personal premium paid by an owner-occupier just needs to be viewed as a lifestyle choice rather than an investment thesis.

Example: A Business Bay buyer reaches their ceiling

Say a buyer is interested in a one-bedroom apartment in Business Bay. Before deciding whether to offer, they review DLD sales data for comparable units in the building and similar projects nearby, along with the listing documents, which typically cover the tenancy position, service charge documentation, estimated rental income, and expected maintenance costs. They decide they want to acquire this asset for no more than AED 1,700,000 all-in, including all fees and costs. Working back from that AED 1,700,000 ceiling, the buyer lists out the costs that sit on top of any winning offer:

• 4% DLD transfer fee
• 2% agency commission + VAT
• AED 4,200 for the trustee office
• AED 650 for title and administration
• AED 2,000 for the developer's NOC
• AED 18,000 for initial readiness costs
• AED 10,000 for contingency financing costs

Exact allocations vary depending on the specific transaction, the developer involved in the project, and the financing available to the buyer. The DLD Property Purchase Registration Service outlines standard charges for registering a property purchase in Dubai, while the OpenOffers Rules and Form F set out how costs are allocated between the parties.

In this example, the buyer sets a maximum offer of AED 1,565,000. The reserve is met at AED 1,545,000, but offers continue through the countdown, and the Business Bay apartment eventually sells for AED 1,605,000. Even though the buyer loses the property, they stick to their numbers. At a purchase price of AED 1,605,000, the modeled all-in cost would rise to AED 1,737,755. That is AED 37,755 above the buyer's original ceiling. That doesn't mean the winning buyer paid too much, as there might be a plethora of other variables involved. They may have lower transaction costs, no agency commission, a different rental strategy, or simply place more personal value on the property. It just means AED 1,605,000 no longer worked for this buyer's investment thesis.

With an AED 1,565,000 offer, there is only AED 4,685 of room under the all-in cap. A buyer who wants more cushion should lower their maximum before offering. Buyers should also stress-test for lower rents, higher vacancy, increased maintenance, and a lender valuation coming in short, instead of solely relying on a made-up best-case scenario. Business Bay adds another layer of complexity due to wide variations in development quality, service charges, views, tenancy status, and achievable rents per unit. The cap should reflect your unit rather than the general average for the entire community.

How to set a maximum offer before you compete

A maximum offer should be set using as much information and due diligence as possible. Follow the steps below:

Where percentage-based costs apply, buyers can use this formula:

The ceiling should only move if the facts change, never because offers are coming fast or the countdown is running out. A lower bank valuation or a tenant who refuses to vacate are reasons to lower the ceiling. More buyers competing is not a reason to raise it; that only tells you how many people want to buy at the prices being shown.

How to avoid overpaying during the countdown

The most basic way to protect yourself from the winner's curse is to make your hardest decisions while the property is still just a spreadsheet and a due diligence pack, not a live countdown.

A good way to check yourself is to ask: If this property was listed privately again tomorrow at the exact same price, would I purchase it? If the answer is no, your higher-than-expected offer is likely driven by the competition rather than the asset's quality or value.

YallaValue's OpenOffers model: a more structured way to buy and sell

YallaValue, a DLD-licensed auction house, has developed OpenOffers, built around public offers, real buyer competition, and a defined closing timeline. The structure can reduce some of the information gaps that contribute to the winner's curse, but it does not replace buyer discipline. Under the current OpenOffers process, each property follows a five-week campaign with offers open from day one. Buyers can review the listing, book viewings, and offer any amount. At least three valuations support the pricing process, and the reserve cannot exceed their median. All offers are displayed on a public board with the time they were made. When the reserve on a property is met, all buyers are notified and a 7-day countdown starts. If a new leading offer arrives in the last 24 hours, the close automatically moves, so the property cannot be won with a last-second offer. Where the platform supports it, buyers can specify a maximum, and the system only improves their offer by the required step up to that specified maximum. These features support discipline, but they do not set the buyer's value. Multiple valuations provide useful reference points, not a universal maximum. Visible offers confirm real competition, not that another buyer shares the same costs or strategy. “Reserve met” confirms the seller's minimum, not that the property is below market value. YallaValue does not add a separate buyer's premium. Its fee is paid by the seller, and the 10% deposit forms part of the purchase price rather than sitting above it. However, buyers must still budget for Dubai's normal acquisition costs and prepare the deposit, financing, NOC, and trustee-transfer steps before offering.  

FAQs

Does having more buyers mean the winner overpaid?

No. An increase in buyers is likely to increase competition, potentially leading to higher prices and stronger demand. A buyer only overpays when the final all-in cost of winning is greater than the amount their own research and risk tolerance support.

Can a mortgage valuation prevent the winner's curse?

No. A mortgage valuation assists the lender in making its loan decision, and it may come in below the winning offer. Buyers using mortgage financing should factor a potential valuation shortfall into their cap before offering, not after.

Is price per square foot enough to set a maximum offer?

No. While price per square foot is useful, it does not account for differences such as floor, view, layout, condition, parking, tenancy, and service charges. Alongside price per square foot and recent building sales data, use cost and income models specific to the individual unit.