What Behavioral Economics Has to Say About Buying a Home in a 10-Day Offer Cycle

Part Two of an ongoing series on the psychology of San Francisco real estate.

Not long ago, I was working with a pair of buyers on a single-family home in San Francisco. We went well into the millions above the list price. We still lost. The winning offer was all cash, above even what we had written.

I want you to sit with that for a moment. Not just as a story about a deal that didn't close, but as a case study in what happens to the human brain when you hand it a list price, a 10-day deadline, and the knowledge that other people want the same thing you do.

The list price in San Francisco is not a price. It is a psychological event. It is the first number you see, and because of that, it is the number your entire decision-making apparatus will spend the next ten days trying to escape and failing. Behavioral economists call this anchoring. Tversky and Kahneman first described it in 1974 as one of the central heuristics of human judgment under uncertainty: we receive a number, we can't fully shake it, and everything we do afterward is a negotiation with that original figure, not with the actual value of the thing.

This is how it plays out in practice. You tour the home on a Sunday. You like it. The offer date is Tuesday. Your agent calls the listing agent, who tells you there are four offers coming in, maybe five. You go to your lender. You write your highest and best. You waive your financing contingency. You waive your appraisal contingency. You write a letter about how much your family would love the kitchen. You submit. You wait. You find out Wednesday morning that you didn't get it.

That is San Francisco. That is also, somewhat tidily, the entire subject of this post.

The Number That Isn't Real and the Brain That Believes It Anyway

Here is something worth knowing about San Francisco: most homes are not priced at what the seller expects to receive. They are priced below it, sometimes well below it, to generate competition. According to Compass data cited in the SF Standard, about 70 percent of single-family homes in San Francisco sold above asking last year, with houses closing for an average of 11 percent over list price. In some neighborhoods, agents routinely list homes hundreds of thousands of dollars below what buyers will ultimately need to write. A Coldwell Banker agent who specializes in the Sunset District put it plainly: "The asking price is just the marketing price to get you in the door."

This would appear to contradict the behavioral economics literature. A widely cited 2013 study published in the Journal of Economic Behavior and Organization by Grace Bucchianeri and Julia Minson examined more than 14,000 home transactions and found that higher starting prices are consistently associated with higher final sale prices. The first number matters. Setting a high anchor pulls offers upward. And yet San Francisco sellers routinely set low anchors and still walk away with extraordinary prices.

The reconciliation is not as tidy as either camp would prefer, but it goes something like this: anchoring still operates in San Francisco, it just operates differently. In a normal market, the anchor pulls offers toward a high ceiling. In San Francisco, the low list price activates a different behavioral mechanism entirely. Duke professor Dan Ariely's research on auction behavior showed that low starting prices can generate a greater number of bids, and that herding behavior takes over from there. Buyers signal to one another that this property is worth competing for. The more offers, the more each individual bidder fears losing. The fear of loss, not the anchor itself, drives the price upward.

What makes this especially uncomfortable is that even professionals are not immune to it. A study by Northcraft and Neale asked both real estate agents and students to estimate the value of a house after being shown different listing prices. Both groups were anchored to roughly the same degree. The agents insisted afterward that the listing price had not influenced them. The data said otherwise.

The list price is the first impression your brain receives, whether it is set high or low. The brain is not a fair judge of first impressions, and San Francisco listing agents know it.

The Offer Deadline and What It Does to Your Decision-Making

In San Francisco, the 10-day offer cycle is not just a logistical timeline. It is a pressure cooker designed, whether intentionally or not, to accelerate every cognitive bias the human brain is capable of producing.

You have ten days, sometimes fewer. You attend one or two open houses. You review a disclosure packet that can run 200 pages. You decide whether to waive contingencies worth six or seven figures. You do this while working a full-time job, and while watching other people make the same decision in real time, which means the anxiety of competition layered on top of the anxiety of commitment.

Kahneman and Tversky's prospect theory describes this precisely: losses feel approximately twice as powerful as equivalent gains. Losing a house you wanted, to a higher offer you didn't know was coming, registers in the brain as a significant loss. The fact that you never owned the house does not matter. The endowment effect means you had already begun to inhabit it, psychologically, the moment you started imagining your furniture in the living room.

This is why buyers in competitive offer situations routinely offer more than they planned to, and feel, afterward, simultaneously relieved that they won and quietly uncertain about whether they paid too much. Both feelings are correct. Neither is particularly useful.

What All-Cash Actually Means, and Why It Isn't Just About Money

When my clients and I lost that offer, the winning bid was all cash and higher than what we had written. There is a practical reason sellers prefer cash: no loan contingency means no appraisal, no underwriting, no lender, no risk that the deal collapses in week three because the bank found something they didn't like about the roof. The seller's certainty is worth something real.

But the psychology of cash runs deeper than that. A cash offer signals a buyer with enough liquidity to absorb the unknown. It signals someone who has done this before, or who has enough resources that this loss, if it came to that, would not ruin them. In a market where sellers are simultaneously experiencing their own version of loss aversion, the cash buyer removes the psychic weight of risk from the transaction.

Research using San Francisco Bay Area real estate data found that homeowners facing potential nominal losses set significantly higher asking prices and are more selective about the offers they accept. A financed offer, even a strong one, carries a contingency that can feel to a loss-averse seller like a door left open for something bad to happen. The cash offer closes that door.

A 2026 report by the SF Standard noted that appraisal uncertainty has made all-cash offers even more attractive in recent cycles, observing that when buyers drive prices past what current data can justify, lenders get nervous and sellers get skittish. The cash buyer sidesteps that entire conversation.

None of this is a criticism of financed buyers. A well-structured conventional offer is a serious offer. It simply operates in a different category than cash in the eyes of many sellers, and knowing that going in is better than learning it on offer night.

What You Can Do With All This Information

The short answer is: not as much as you'd like.

Knowing about anchoring does not make you immune to it. The Northcraft and Neale study showed this clearly. Knowing about loss aversion does not stop you from feeling the loss. Kahneman himself, after decades of studying cognitive bias, reported that awareness barely softens the effect.

What it does, though, is give you a more honest framework for the decisions you're making. If you're buying in San Francisco and you're financing your purchase, you are not competing on equal terms with an all-cash buyer in most scenarios. That is not a personal failing. It is a structural reality. Knowing this in advance lets you make cleaner decisions: either you are prepared to go high enough to overcome the cash advantage, or you look at properties where cash competition is less concentrated.

It also helps to understand that the number you see in the listing description is a starting point for your feelings, not a statement of value. A home priced well below market in San Francisco is not a bargain. It is an invitation to compete. Your job, in the ten days you have, is to figure out what the home is actually worth, separate from what the seller chose to write at the top of the listing, and separate from what the anxiety of competition is whispering to you at 11 p.m. the night before offers are due.

That requires discipline, a good agent, and a tolerance for the specific discomfort of not knowing whether your number is right until someone else's number comes in higher.

The Part I Haven't Said Yet

There is something that does not appear in the behavioral economics literature, because it is not measurable, but it is real.

The buyers who lose offer after offer in this market do not simply lose offers. They lose confidence in their own judgment. They begin to question whether the next number they write is too low again, which pushes them higher, which is exactly what the market wants them to do. The anchor from the last loss becomes the floor for the next offer. The FOMO from losing becomes the engine that drives overbidding in round two.

I wrote about this in part one of this series. The fear of losing is not the same thing as the desire to win. They feel identical in the moment. They are not identical. One is a rational response to a real opportunity. The other is a cognitive trap dressed up as urgency.

Behavioral economics can name the trap. It cannot spring it for you.

That part is yours.

Sources referenced:

• Bucchianeri, G.W. and Minson, J.A. (2013). "A Homeowner's Dilemma: Anchoring in Residential Real Estate Transactions." Journal of Economic Behavior and Organization, Vol. 89.
• Kahneman, D. and Tversky, A. (1974). "Judgment under Uncertainty: Heuristics and Biases." Science, Vol. 185.
• Kahneman, D. and Tversky, A. (1979). Prospect Theory. As summarized in Kahneman, D. (2011). Thinking, Fast and Slow.
• Northcraft, G.B. and Neale, M.A. (1987). "Experts, Amateurs, and Real Estate: An Anchoring-and-Adjustment Perspective on Property Pricing Decisions." Organizational Behavior and Human Decision Processes, Vol. 39.
• Anenberg, E. (2011). "Loss Aversion, Equity Constraints and Seller Behavior in the Real Estate Market." Regional Science and Urban Economics, Vol. 41.
• Ariely, D., Loewenstein, G., and Prelec, D. (2003). "Coherent Arbitrariness." Quarterly Journal of Economics, Vol. 118.
• Landes, E. (2025, October 3). "Pricing a home in San Francisco is a mind game." SF Standard.
• Landes, E. (2026, March 27). "San Francisco's home price boom is leaving appraisals behind." SF Standard.
• Lee, J., quoted in "How once-sleepy Sunset became SF's most competitive neighborhood." The Real Deal, June 2025.
• Compass data via SF Standard, 2025.