"Did you see that new listing?  It was just listed for $425,000.  Looks like a great place.  I'm sure there will be tons of interest and probably multiple offers.  I can see someone paying up to $440,000 for that house!"

"Wait... what!?  That house just went to closing, and the buyer paid $465,000 for it.  I mean... it was a great house, but $465,000?  For that house?"

Some buyers are comfortable paying more for their house than you might expect. 

Why!?

[1]  Real estate is, often or even most of the time, an appreciating asset.  You're not paying more than anyone might expect on a depreciating asset, like a car.  Even if you paid more than market value for your home, over time, that market value is likely to catch up to and surpass the price you paid.

[2]  Their home is not just a financial asset... it's a place that they live, spend time with their family and friends, often providing a sense of community with neighbors, and so much more.  Paying more than one might expect for a financial asset alone is different than paying more than one might expect for a place to live and potentially spend most of your waking hours.

[3]  Especially over a longer time horizon, the purchase price becomes much less consequential.  Let's say the house was really worth $440K and the homeowner stays in it for 15 years and prices increase a meager 2% per year.  After those 15 years, the house is worth $592K.  At that point, I don't think the homeowner (today's buyer) is overly worried about having paid $465K instead of $440K.

Now, to be clear, I'm not saying that you should be willing to pay any price for any house, and that it is totally normal, fine, cool, acceptable or hip to pay more than market value.

What I am saying is that some buyers are deciding they are willing to pay more than market value for a house in the current market - and I can understand some of the reasons why they choose to do so.