Dublin: For many families in Ireland, buying a home can quickly turn into an exhausting bidding battle. A house advertised at €400,000 may attract an offer of €410,000, followed by another of €415,000. Fearing that they will lose the property unless they increase their offer by another €5,000, buyers can find themselves repeatedly raising their bids.
It is a familiar experience for many people trying to get onto the property ladder. But amid such intense competition, an important question remains: is the home really worth the price being paid?
A study by the Economic and Social Research Institute (ESRI) found that Irish house prices are, on average, 17 per cent higher than economic fundamentals would justify, when factors such as household incomes, interest rates and population structure are taken into account.
The figure does not mean that every €400,000 property is necessarily overpriced by exactly 17 per cent. Property values vary significantly by location, type and condition. However, the finding suggests that the overall housing market is running substantially ahead of the level that underlying economic conditions would normally support.
Middle-income families under pressure
According to the ESRI analysis, middle-income households are among those facing the greatest pressure.
House prices have increased faster than wages, mortgage borrowing has become more expensive because of higher interest rates, and housing construction has failed to keep pace with demand.
The consequences are particularly significant for families trying to buy their first home.
This is also relevant to immigrant families, including many Indians who have established their lives in Ireland. After paying high rents for years while saving for a deposit, buyers may feel under enormous pressure to secure a property when one finally becomes available.
The need to live in particular areas because of children’s schools, commuting requirements or access to established communities can further intensify competition.
That is when another psychological pressure takes hold: “If I don’t buy this house, will I find another one?”
Bidding can become a price-inflating trap
The concern about competitive bidding is not simply speculation.
ESRI research has found that open and online bidding can encourage buyers to pay more than they initially intended. Competing against other bidders can make people increase their offers beyond their original valuation of the property and, in some cases, beyond their planned budget.
That does not necessarily mean that someone who pays €430,000 for a property advertised at €400,000 has been “swindled” out of €30,000. If comparable properties in the area are genuinely selling at similar prices, the higher figure may reflect the market value.
The greater danger is allowing another person’s €425,000 bid to convince you that you must offer €430,000, even when €425,000 was already beyond what you could comfortably afford.
Who benefits when property prices rise?
The immediate beneficiary of a higher sale price is usually the seller.
An investor who purchased a property years ago at a much lower price, or a homeowner who does not need to purchase another property after selling, can potentially make a substantial capital gain from rising prices.
Developers can also benefit from higher prices for newly built homes, while landowners may see the value of their land increase as property prices rise.
Estate agents may also receive higher commissions when their fees are linked to the final selling price.
However, rising prices do not benefit every seller equally. Someone who sells a house for €500,000 but needs to spend €600,000 buying another home in the same market may gain little from the increase.
It would also be misleading to portray banks as the sole beneficiaries of higher house prices. Although larger mortgages can generate greater interest income over time, lending remains subject to affordability assessments, regulatory restrictions and borrowers’ ability to repay.
Does this mean another 2008-style crash is coming?
The ESRI’s estimate naturally raises comparisons with the housing collapse of 2008. However, the institute has stressed that the current situation is different from the conditions that preceded the financial crisis.
Before the 2008 crash, excessive credit growth and loose lending standards contributed significantly to the rapid escalation in property prices.
Today, household debt levels and broader credit-market risk indicators are lower than they were at that time. The current housing problem is driven largely by a shortage of homes and reduced purchasing power relative to property prices.
Therefore, the conclusion that “prices are 17 per cent too high, so they will soon fall by 17 per cent” would be incorrect.
If housing supply remains constrained while population growth and demand remain strong, property prices could continue to remain elevated.
Government measures aimed at increasing housing supply, supporting affordable construction and converting commercial buildings and offices into homes may help, but their effectiveness will depend on how many homes are actually delivered and who ultimately gains access to them.
Check previous sale prices before entering a bidding war
For anyone considering buying a home, one of the most important steps is to research previous sale prices.
The Residential Property Price Register can provide information on how much comparable properties have sold for in recent months, including properties in the same housing estate or on nearby roads.
This can help buyers establish a realistic picture of local market values before making an offer.
Buyers should then decide their maximum affordable price before the bidding begins.
If €425,000 is the highest amount a household can safely afford, there is little justification for increasing the offer to €430,000 simply because another bidder has offered €426,000.
That predetermined figure should be treated as a walk-away limit — the point at which the buyer is prepared to leave the property rather than take on an unaffordable financial commitment.
Buyers do not have to reveal their maximum budget
Buyers are not required to disclose their maximum budget to an estate agent.
At the same time, estate agents are entitled to establish whether competing bids are backed by genuine purchasing capacity. This may include checking proof of funds or evidence that the necessary finance is available, as well as mortgage approval in principle — the bank’s initial indication that it is prepared to provide a loan subject to its conditions.
For buyers, having these documents ready can strengthen their position and demonstrate that an offer is credible.
A bank valuation is not a structural survey
For those buying a second-hand home, particularly a property they are strongly considering, an independent structural survey can be a valuable safeguard.
Problems such as damp, roof damage, structural defects or building alterations carried out without the necessary permissions can potentially result in repair costs running into tens of thousands of euros.
A bank valuation should not be treated as a substitute for a comprehensive structural inspection.
The bank’s primary purpose in conducting a valuation is to establish whether the property provides sufficient security for the mortgage. It is not necessarily intended to identify every technical or structural defect in the house.
The real cost of a home goes beyond its sale price
Buyers should also look beyond the headline purchase price.
A property’s BER energy rating, heating system, insulation, roof condition, windows, management fees, planning compliance, flood risk and commuting costs can all have a significant impact on the actual cost of owning the home.
A property that appears cheap at the point of purchase may prove considerably more expensive if it requires major repairs, energy upgrades or other substantial expenditure.
Owning a home is not the same as owning a particular home
Ultimately, there is an important distinction between wanting to own a home and wanting to own one particular home at any cost.
The first can be a sensible long-term financial objective. The second can become the beginning of a bidding trap.
Ireland’s housing crisis remains fundamentally a supply problem. There are not enough homes available in the locations, price ranges and types required to meet demand, keeping pressure on the market.
The shortage of new construction, combined with continued population growth and strong demand, means that competition for suitable homes is likely to remain intense.
The ESRI’s 17 per cent estimate should therefore not be interpreted as a message telling people not to buy.
Instead, it is a reminder that the asking price and the true value of a property are not necessarily the same thing.
Every home should be assessed against comparable local sales, its physical condition and its long-term costs — but also against the buyer’s ability to comfortably carry the associated debt.
For immigrant families and other first-time buyers who have spent years paying rent and saving to purchase their first home in Ireland, one principle is particularly important:
The winner of the housing race is not necessarily the highest bidder. It is the buyer who finds the right home at the right price without putting their family’s financial future at risk.
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