Paying 33% Too Much at Auction – Irrational Exuberance

Paying 33% Too Much at Auction – Irrational Exuberance

Originally Published: 20 November 2024 | Updated: April 2026

One of my mentees, a complete novice to both property investment and auctions, bid live online at a London auction recently. She had done everything right. We identified the reserve. We built a maximum bid from the ground up. We accounted for every cost. The seller was not accepting pre-auction offers, so a live bid was the only route.

Then the room took over.

What Happened at the Auction

I watched from my phone while out for an early supper with my family. My young kids crowded round the screen as our lot came up. The live auctioneer was good, late in the afternoon, energy high, bidders primed.

Three bidders emerged. My mentee held her nerve and dropped out exactly at the maximum bid we had agreed. The right call. Two other bidders kept going.

They were like boxers trading blows in the middle of the ring, adrenaline up, logic down, both determined to win at any cost. I was texting my mentee: insane. nuts. My twelve-year-old, who had viewed the lot with us, watched the final price land and said: "Daddy, that's way too much."

He was right. The lot closed 33% above our thoroughly evidenced maximum bid.

What Is Irrational Exuberance at Property Auctions?

The phrase "irrational exuberance" was coined by Alan Greenspan in 1996 to describe asset prices detached from underlying value. It applies directly to competitive bidding environments.

At a property auction, irrational exuberance occurs when bidders continue raising their hand or clicking their mouse beyond the point at which the numbers make sense. The auction room, or the live online feed, creates a competitive psychological environment that erodes rational decision-making. The desire to win overrides the discipline to stop.

The result is what we saw here: a buyer who would have secured a better deal purchasing the same property through an estate agent on Rightmove or Zoopla. Even in the cold light of the following morning, the price made no sense relative to the achievable rent or true market value.

This is not unusual. I have seen it play out repeatedly over years of buying and selling at auction. The room has a momentum of its own. Your job is not to feed it.

The Five Disciplines That Prevent Overpaying at Auction

What separates the investors who build long-term portfolios from those who suffer buyer's remorse in the car park comes down to process. Here are the five disciplines I apply with every mentee before they bid on anything.

1. Nail your valuation before you enter the room

Use either income capitalisation or comparable evidence, ideally both. Income capitalisation means calculating the gross yield you require, then working backwards from the achievable rent to establish what the property is worth to you. Comparables mean finding recent sold prices for equivalent properties in the same area. Chapter 4 of my book covers both methods in detail.

2. Build your maximum bid from every cost, not just the purchase price

Your maximum bid must absorb: the auction house buyer's premium, any Special Conditions of Sale fees (which can be substantial and are often hidden in the legal pack), bridging finance costs, legal fees, Stamp Duty Land Tax, and the full cost of any refurbishment. If the number still works after all of that, you have a viable bid. If it doesn't, the lot isn't for you.

3. Understand the refurbishment cost before you bid — not after

I have seen investors win lots they should never have touched because they underestimated, or simply guessed at, the cost of putting the property right. Get a credible schedule of works and a contractor's estimate. If access hasn't been possible, apply a conservative contingency. Never bid on the basis of hope.

4. Set your maximum bid and treat it as a ceiling, not a suggestion

Once you have done the analysis, your maximum bid is the number above which the deal stops working. It is not a starting point for negotiation with yourself in the room. The moment bidding passes your maximum, your hand goes down and stays down. That is not a defeat. That is discipline.

5. Never overpay to win

Winning a lot at the wrong price is not a win. It is a loss that takes longer to realise. The auction room is not a competition. You are not there to beat the other bidders. You are there to acquire an asset at a price that generates a return. If another bidder wants to pay 33% more than the property is worth, let them. Your capital lives to fight another day.

In the Army, after every exercise or operation, you conduct an after-action review: what happened, why it happened, and what you do differently next time. My mentee and I did exactly that.

She had executed the process correctly. She had not overpaid. She had not panicked. She had followed the plan under live conditions, in a real auction, with real money, and walked away clean. That is the foundation every serious investor needs to build on.

We dusted ourselves off. We went again.

What This Means for Your Auction Strategy

Overpaying at auction is almost always the result of inadequate preparation rather than bad luck. When you have a rigorous valuation, a fully costed maximum bid, and the discipline to honour it, the auction room loses its power over you. You stop reacting to the room and start executing a plan.

If you want to learn how to build that process from scratch, including how to read a legal pack, set a maximum bid, and assess distressed properties before you bid, my one-day intensive course runs in London and live online. Details and tickets here.

About the author: Dominic Farrell is an author, property auction investor and mentor with a track record of acquiring distressed, repossessed, and below-market properties across the UK. He is the author of Property Auctions: Repossessions, Bankruptcies and Bargain Properties (4th edition, 2026), the UK's number one bestselling book on property auctions, and the founder of Distressed Assets. His mentorship programme has guided investors from first auction to profitable portfolio.