Individuals overpaying is not enough to raise average values of houses in a market. In you example the person who owned the 250k house got a nice windfall selli

Individuals overpaying is not enough to raise average values of houses in a market. In you example the person who owned the 250k house got a nice windfall selling their price above market value but that is not enough to raise the value at large of houses in that market. It would take people systemically overpaying and overpaying in large volume for it to affect housing prices and there's simply no evidence of that.