The "Winner's Curse" and How to Avoid it | Carolina Auction & Realty

Have you ever attended an auction, placed a winning bid, and then felt those happy “winner” feelings fade to the sinking suspicion you may have paid more than the item was worth? If so, you have experienced the notoriously odd phenomenon called the “winner’s curse.”

It can be challenging to correctly appraise and determine an item’s real worth, particularly with real estate. The winner’s curse frequently occurs in North Carolina, but with some smarter practices and the help of a realty company, you can avoid it and learn to appraise and bid more accurately.

What is the Winner’s Curse?

The winner’s curse is the surprisingly common occurrence felt by those who place the winning bid at an auction. After they win, adrenaline and dopamine flush the brain with pleasure and good feelings. When some time passes, the winner’s curse kicks in, those feelings fade, and you feel buyer’s remorse. However, you can employ a few different methods to avoid the curse and make smarter investments.

How to Avoid the Curse

Common Value vs. Private Value

The first part of avoiding the winner’s curse is ascertaining if the item on the auction block is of common value or private value. Common value refers to the total worth of an object determined to be the same for every potential bidder. Private value refers to the perceived value of an item that varies from person to person.

Essentially, an item’s value depends on what somebody is willing to pay for it. If an item has sentimental or private value (i.e., your mother’s locket), the winner’s curse won’t apply since you’re willing to pay more for it. It’s more valuable in your eyes and worth the higher price. If you’re considering a common value item, like the homes available at real estate auctions, they generally have the same value to all the bidders present even if that value hasn’t been pinned down yet.

Find an Advantage Over Other Bidders

If you have more unique skills, abilities, knowledge, or resources than the other bidders, use it to your advantage. When an item is more valuable to you, the winner’s curse won’t take effect. This overlap of private and common value is particularly applicable with North Carolina estate sales, where people bid on rare items that aren’t typically available to other consumers.

Consider Every Potential Outcome

At an auction, emotions can fly high. Competition overwhelms the senses, and you are more likely to make an impulsive decision you’ll later regret. If you want to skip the winner’s curse, consider every outcome carefully, including what will happen if you win. Take the time to contemplate if you’d be okay with making a higher bid than what others feel the item is worth. Another good practice is to set a budget based on the amount you’re willing to spend. Stick to your limit and you won’t end up feeling like you overpaid.

Avoid Falling Prey to the Winner’s Curse

The infamous winner’s curse strikes unsuspecting buyers at auctions every day, but you can skip worrying about buyer’s remorse with some smarter practices and habits. When an item is of undetermined value, there’s a chance you could end up overpaying if you don’t take the time to appraise and analyze its inherent worth correctly. Use any advantage you have over other bidders, consider every possible outcome, and utilize the help of a realty and auction company to avoid the winner’s curse next time you’re at an auction.

Proudly Serving Raleigh For Over 20 Years

Led by our president and owner, Tom Jordan, Carolina Auction and Realty has been proudly serving the North Carolina realty market for over 20 years. We are an auction company whose real estate brokers and certified appraisers have been accredited and received awards several times for their excellent business practices. Carolina Auction & Realty is a long-standing and reputable business that offers a personalized, unique experience for every client and some of the smartest real estate experts in North Carolina.