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Assessing the Performance of Real Estate Auctions
Abstract
This article investigates the performance of real estate auctions relative to negotiated sales. It uses a repeat-sales methodology to control for unobserved differences in the quality of auction properties. Properties auctioned in Los Angeles during the 1980s boom sold at an estimated discount of 0%-9%, while sales in Dallas following the oil bust obtained discounts of 9%-21%. This evidence is consistent with the theoretical prediction that the auction discount increases in downturns when a seller trades-off a longer expected selling time in a search market against an immediate auction sale. The study finds no evidence of the declining price anomaly. Copyright American Real Estate and Urban Economics Association.
... Prior studies have used hedonic pricing models to examine auction discounts and premiums relative to private sales. In response to an earlier theoretical exposition by Adams et al. (1992), and Mayer (1995), for instance, Mayer (1998) examines the relationship between auction prices and predicted sales prices using auction data in Los Angeles. Mayer finds evidence that auctions are associated with price discounts. ...
... The authors also document that the order of sale may indeed impact auction prices, probably due to increased desperation of bidders to secure the property as the auction proceeds. Contrary to the findings of Mayer (1998), and Allen and Swisher (2000), Ashenfelter and Genesove (1992) find evidence that auctioned properties sell at price premiums in a United States (US) sample. ...
... Two conflicting conclusions can be drawn from the foregoing regarding the price effects of real estate sales by auctions. In the US, most auction studies (Mayer, 1998 andAllen andSwisher, 2000) find price discounts. In Australia, New Zealand and Ireland, auction research (Lusht, 1990;1996;Dotzour et al., 1998 andStevenson andYoung, 2004) supports price premiums. ...
This study examines the determinants of auction premium using data from a first-price sealed bid auction of Federal Government Landed Properties in Nigeria. The results indicate that the number of bidders and location are important determinants of auction price premiums. These findings are consistent with the auction theory. The empirical estimates also suggest that property type as well as bidder characteristics may also influence auction premiums.
... As there is a trade-off between time and effort in relation to individual outcome, buyers who put in more effort into researching the market are also more likely to buy a property that meets their preferences well. Mayer (1995Mayer ( , 1998 relates this to real estate sold through auctions rather than negotiated sales, finding that auctions lead to lower sale prices as the matching of buyers and sellers becomes less efficient due to the time constraint of an auction sale. Following that line of theory, the price discount of an auction sale varies with market conditions, as the matching of buyers and sellers will take less time during boom periods when there are many market participants, thus, the price discount will be lower compared to bust periods when sales are expected to take longer time. ...
... A related stream of literature has examined the relationship between sale mechanism and price, typically by examining differences between negotiated sales and auctions (Allen and Swisher 2000;Mayer 1995Mayer , 1998Ong 2006;Quan 2002). Consistent with matching theory, Mayer (1995) found that auction sales cause lower prices; as such a quick sale results in a poorer match between buyer and house as compared to a longer matching process. ...
... The theoretical framework predicts larger discounts in depressed and thinner markets, as fewer potential buyers leads to a worse matching. Following the logic of matching, auction discounts were modelled to be larger for heterogeneous and larger houses as the cost of mismatching is higher compared to smaller and homogenous houses-since the sale mechanism matters less when a larger number of buyers place a similar value on the same property (Mayer 1995(Mayer , 1998. ...
This study adds to previous research analyzing the impact of foreclosure status on real estate sales price by using a Swedish dataset were an appraiser has estimated the market value of apartments before they were sold at foreclosure auction. Appraisal data can address the issue of selection bias and a potential overestimation of foreclosure related discount. A mean discount of 7.9% with a corresponding median value of 9.5% is shown when comparing appraisal estimates with prices achieved at foreclosure auction. A hedonic model is also applied, and the resulting discount is estimated at 23.9%. Measures of local market conditions are related to the foreclosure discount, with hedonic price models and models using appraisal data producing consistent results. It is found that the discount is higher in lower priced neighborhoods, in neighborhoods that are heterogeneous in terms of price and in less liquid neighborhoods (significant in the hedonic model). It is also found that apartments with a higher value relative to the neighborhood price level sell at larger discounts. The results are consistent with studies on search and matching theory and contrast from earlier studies that attribute a foreclosure discount to seller motivational factors.
... Such distress sales, which usually move faster during auction, are usually instigated by the mortgagee but over the years there have been apparent increase in owners initiating auctions due to the diminution of the stigma associated with auctions [13]. The parity given to both processes of sales has resulted in earlier researchers trying to compare revenue from auction to private negotiation when it comes to the marketing of real estate ([15; [16]; [17]). In fact, in academic research auctions have principally been studied under two major reasons: assessment of revenues from auction types to private negotiation while the other is the determination of factors on which auction succeeds, a function of the probability of sale, [18]. ...
... The revenue derived from both sales processes are considered equal [19]. [16] in a study carried out in Los Angeles, examining the relationship between prices from auction and predicted sales prices reveal association between auction and price discount. However, there are instances when revenue gotten from auction sales outweighs private negotiation ( [20]; [21]; [15]; [22]; [9]). ...
... In the US, it was also discovered that auctions have better payoffs for sellers when large auctions can be held and economies of scale can be gotten from advertising and commission costs. ( [24]; [16]). ...
There has been recent agitation amongst estate surveyors and valuers that auctioneering ought to be an aspect of their practice. This crave for supremacy appears contestable as they have not had an exclusive preserve in this aspect of practice coupled with the participation of other professionals. This study thereby aimed at discovering the prospect of estate surveyors and valuers in auctioneering amongst various stakeholders. Questionnaires were distributed to one hundred and eighty-three (183) estate surveyors and valuers in Lagos State, thirty-nine (39) auction houses in Lagos state and eleven (11) government agencies who require the services of auctioneers. The use of descriptive and inferential statistics such as the Relative Importance Index (RII), Chi-square test and Kruskal-Wallis test of significance were used in the analysis of the data. It was revealed that although the proportion of estate surveyors and valuers engaged in auctioneering are quite minimal, they are still substantial compared to other contending professionals. Estate surveyors and valuers are being vaunted to handle auctioneering even though caution has to be applied in the result not being significant at the 5% significant level but significant at the 1% level of significance. The need for professionals exclusively known as auctioneers was advocated. The researchers thereby opine that the inclusion of auctioneering in the curriculum of all higher institutions offering estate management will be a welcome development that will give the estate surveyors and valuers the hedge for specialization as the professional auctioneer being advocated from responses in the study.
... There is a well-established body of inquiry into auction theory as an efficient price formation process following seminal studies by Vickrey (1961) and Riley and Samuelson(1981), while the competitive mechanisms at work in auctions is also well reviewed in McAfee and McMillan (1987) and Milgrom (Milgrom, 1989). In attempts to relax equilibrium price formation constructs on auction outcomes, more recent studies consider constraints affecting participants in auctions, as in practice bidders who opt to contest an auction may also face binding constraints which potentially could influence bidding behavior and auction outcomes (Che and Gale, 1996, 1998, 2000Fang and Parreiras, 2002;Che, Gale and Kim, 2013;Kotowski and Li, 2014). An important constraint is a firm's finances, which is related to its "ability to pay" for the assets at auction Parreiras, 2002, 2003;Che, Gale and Kim, 2013;Kotowski, 2013). ...
... Closer to our interest in land auctions with constrained bidders, Che and Gale (1996;1998) extend investigation into corporate capital budgeting decisions to auction outcomes with endogenously determined bidder constraints, with bidders reliant on expensive external financing and shifting resources from existing activities to finance potential bids. They develop a single object auction model with bidder financial constraints and increasing marginal cost to finance bids, where high budget bidders would not be affected by constraints but constrained bidders can only bid less than their hard budget. ...
... Tse, et al (2011) test the winner's curse hypothesis using Hong Kong land auction data, and find that joint bidding, acting as mechanism to pool information and reduce competition, lowers auction prices. They exclude endogenous financial or budget constraints, although we know from Che and Gale (1996;1998) that joint bidding could also result in higher bids when scale is a factor as it relaxes financial constraints. A number of studies with Singapore data offer limited specific insight into the influence of bidder characteristics on auction outcomes. ...
This paper tests for the effects of financial constraints on open-bid English land auction prices and bids. It is argued that bidders’ ability to pay, taken as capital resources and/or capital budget constraints, influence bids and final auction prices. While high capital resource developers may elect to bid more than optimal to win auctions, or bidders may elect to pool resources in joint bidding, budget constraints imposed by firm-specific financial variables on the other hand are expected to restrict bids. Land auction data in Hong Kong are used to test systematically these predictions. It is found that a firm’s age, the number of winners in a joint bid, and firm status in the market are positively related to prices, all factors which may be attributed to a firm’s ability to finance the auction price. Firm size, internal funds, financing cost, debt capacity and existing capital expenditure are also shown to affect bids submitted in land auctions: firm size and internal funds are positively related to bid prices; while constrained debt capacity, financing cost and existing capital expenditure lower bids. The results are consistent with predictions that a firm’s financial constraints, and thus its effect on capital budgets, are relevant factors in predicting land auction outcomes. More generally, these findings confirm that similar financial factors that constrain corporate capital investment also influence directly acquisition of assets at auctions.
... For example, the auction literature has shown that in comparing between alternative auction systems, price effects between the formats arise with variations to the Vickrey (1961) basic framework along any number of dimensions, including the extent of risk aversion, information asymmetries, and the independence of bidder's values (McAfee and McMillan 1987). 1 In the United States, the predominant system of selling real property is through direct negotiation. In fact, real property auctions in US markets are often associated with distressed property or with new, multi-unit developments, in which sellers may realize economies of scale in marketing costs (Mayer 1998). Thus, existing empirical contributions on real property auctions have either looked to foreign markets (Lusht 1996;Ooi et al. 2006) or involve the sale of distressed property (Quan 1994;Mayer 1998;Chinloy et al. 2016). 2 Several of these empirical contributions explore whether auctions are associated with a price premium or price discount relative to the price achieved by similar properties under an alternative selling mechanism. ...
... In fact, real property auctions in US markets are often associated with distressed property or with new, multi-unit developments, in which sellers may realize economies of scale in marketing costs (Mayer 1998). Thus, existing empirical contributions on real property auctions have either looked to foreign markets (Lusht 1996;Ooi et al. 2006) or involve the sale of distressed property (Quan 1994;Mayer 1998;Chinloy et al. 2016). 2 Several of these empirical contributions explore whether auctions are associated with a price premium or price discount relative to the price achieved by similar properties under an alternative selling mechanism. These studies have produced mixed conclusions, some with evidence of auction premiums and some with discounts. ...
... These studies have produced mixed conclusions, some with evidence of auction premiums and some with discounts. Lusht (1996) and Mayer (1998) note that if the choice of selling mechanism is related to expected price, the endogeneity of the choice of selling mechanism must be considered for any price effect finding to be robust. ...
The choice of marketing system used to allocate property rights is important across many industries. In Scotland, two systems of marketing real property co-exist: fixed price, where homes are listed for sale at a fixed price on “first-come-first-serve” basis, and offers over, which is a sealed-bid auction format where the seller indicates a floor for bids. Using 4,780 detached housing sales between 1984 and 2002, this paper explores potential price effects of the seller’s choice of marketing system. Specifically, a log price model is estimated based on transactions under both marketing systems acknowledging endogeneity in the choice of marketing system. The empirical procedure reveals that sellers select the marketing system which results in the highest predicted price for their property.
... However, there have been differences in the extent of use of auctions in the real estate market as an alternative to negotiated sales. While they were used largely for disposing of real estate in bankruptcies cases, they have been used as an alternative sales method in the US up till the 1980s even though their use slowed after that due to the notion that they led to sales of properties at less than market value (Mayer, 1998). In contrast, auctions are an accepted mechanism for selling residential real estate in Australia, Scotland, New Zealand and Sweden, alongside private negotiations (Lusht, 1996;Mayer, 1998;Eklöf & Lunander, 2005). ...
... While they were used largely for disposing of real estate in bankruptcies cases, they have been used as an alternative sales method in the US up till the 1980s even though their use slowed after that due to the notion that they led to sales of properties at less than market value (Mayer, 1998). In contrast, auctions are an accepted mechanism for selling residential real estate in Australia, Scotland, New Zealand and Sweden, alongside private negotiations (Lusht, 1996;Mayer, 1998;Eklöf & Lunander, 2005). ...
... Whereas they sold in the US at a discount (Wright 1989, Gau & Quan 1992, in Australia Lusht (1996) found they sold at above market prices. Mayer (1998) tries to explain the discrepancy in terms of: ...
Auctions have grown in importance as a way of trading not only in art and antiques, but also a wide range of goods including offshore oil and telecommunication licenses, real estate, procurement contracts and even simple consumer goods. This
paper briefly reviews the basic auction types, and bidder behavior under the
various auction types. It further explores the relationship between the auction
types and the important properties that a good auction must have. Four basic types of auctions are used depending on the good and the objectives of the auctioneer: English, Dutch, first and second-price sealed bid auctions.
An important inference from previous research on auctions is that good or bad
auctions arise from two design issues: how to attract bidders and avoid collusion.
Auctions are used in the real estate markets across the world even if they are not that widespread. Compared to private negotiations, real estate auctions have been shown to result in higher prices for similar houses in good condition, and in favorable locations. It could arguably thus support a vibrant housing market by
creating the right incentives for property to change hands. However, in declining
markets, and for distressed properties and/or for dissimilar properties, the reverse could happen. The current Swedish ascending auction may be vulnerable to collusion and consequently deter bidders. The solution may be to explore design refinements rather than abolish auctions altogether. The paper also reviews research on online auctions. The paper concludes by identifying issues for further research.
... (a) controlling for property, locational and neighbourhood characteristics that proxy for quality in the regression model (Dotzour, Moorhead, & Winkler, 1998;Lusht, 1996); (b) constructing a repeat sales index for sample of auctioned properties to estimate their predicted sales prices (Mayer, 1998); ...
... Alternatively in the United States, the stigma associated with foreclosure causes auctioned properties to trade significantly below market value. Mayer (1998) highlights that auctioned properties in Los Angeles and Dallas were sold at a discount in the range of 0%-9% and 9%-21% respectively, relating the findings to market conditions in the two markets where Los Angeles data in the late 1980s emerged against the backdrop of the residential property boom in southern California while the Dallas data during the same period reflected a severe downturn due to oil bust crisis. This is consistent with his earlier work (Mayer, 1998) which theorized that the discount for auction properties rises during downturns. ...
... Mayer (1998) highlights that auctioned properties in Los Angeles and Dallas were sold at a discount in the range of 0%-9% and 9%-21% respectively, relating the findings to market conditions in the two markets where Los Angeles data in the late 1980s emerged against the backdrop of the residential property boom in southern California while the Dallas data during the same period reflected a severe downturn due to oil bust crisis. This is consistent with his earlier work (Mayer, 1998) which theorized that the discount for auction properties rises during downturns. To overcome the quality bias associated with the hedonic regression, Mayer constructs a resale price index that tracks the price performance of houses sold more than once in the sample period. ...
With the exception of anecdotal information which suggests that auctioned or foreclosed properties in Malaysia tend to be sold at a deep discount, no study has thus far attempted to quantify this foreclosure discount. This notion is explored by comparing the listing price of auctioned apartments with comparable non-auctioned apartments located within the same building blocks in Kuala Lumpur during the period 2009-2014. The property auction market is predominately relied upon to dispose of foreclosed properties in Malaysia. It is found that foreclosed apartments are listed at a discount of 33.4% as compared to apartments advertised in the private negotiated market. This discount is attributed to “stigma effect” associated with auctioned properties and the imperfections of the Malaysian auction market such as auctioned properties may not carry a clean title, potential buyers cannot view the properties prior to auction and may not obtain vacant possession of the properties. The “proxy effect” was minimal since the matching strategy adopted would have netted out the differentials in locational and neighbourhood characteristics between auctioned and non-auctioned properties.
... There is a well-established body of inquiry into auction theory as an efficient price formation process following seminal studies by Vickrey (1961) and Riley and Samuelson(1981), while the competitive mechanisms at work in auctions is also well reviewed in McAfee and McMillan (1987) and Milgrom (Milgrom, 1989). In attempts to relax equilibrium price formation constructs on auction outcomes, more recent studies consider constraints affecting participants in auctions, as in practice bidders who opt to contest an auction may also face binding constraints which potentially could influence bidding behavior and auction outcomes (Che and Gale, 1996, 1998, 2000Fang and Parreiras, 2002;Che, Gale and Kim, 2013;Kotowski and Li, 2014). An important constraint is a firm's finances, which is related to its "ability to pay" for the assets at auction Parreiras, 2002, 2003;Che, Gale and Kim, 2013;Kotowski, 2013). ...
... Closer to our interest in land auctions with constrained bidders, Che and Gale (1996;1998) extend investigation into corporate capital budgeting decisions to auction outcomes with endogenously determined bidder constraints, with bidders reliant on expensive external financing and shifting resources from existing activities to finance potential bids. They develop a single object auction model with bidder financial constraints and increasing marginal cost to finance bids, where high budget bidders would not be affected by constraints but constrained bidders can only bid less than their hard budget. ...
... Tse, et al (2011) test the winner's curse hypothesis using Hong Kong land auction data, and find that joint bidding, acting as mechanism to pool information and reduce competition, lowers auction prices. They exclude endogenous financial or budget constraints, although we know from Che and Gale (1996;1998) that joint bidding could also result in higher bids when scale is a factor as it relaxes financial constraints. A number of studies with Singapore data offer limited specific insight into the influence of bidder characteristics on auction outcomes. ...
This paper tests for the effects of financial constraints on open-bid English land auction prices and bids. It is argued that bidders’ ability to pay, taken as capital resources and/or capital budget constraints, influence bids and final auction prices. While high capital resource developers may elect to bid more than optimal to win auctions, or bidders may elect to pool resources in joint bidding, budget constraints imposed by firm-specific financial variables on the other hand are expected to restrict bids. Land auction data in Hong Kong are used to test systematically these predictions. It is found that a firm’s age, the number of winners in a joint bid, and firm status in the market are positively related to prices, all factors which may be attributed to a firm’s ability to finance the auction price. Firm size, internal funds, financing cost, debt capacity and existing capital expenditure are also shown to affect bids submitted in land auctions: firm size and internal funds are positively related to bid prices; while constrained debt capacity, financing cost and existing capital expenditure lower bids. The results are consistent with predictions that a firm’s financial constraints, and thus its effect on capital budgets, are relevant factors in predicting land auction outcomes. More generally, these findings confirm that similar financial factors that constrain corporate capital investment also influence directly acquisition of assets at auctions.
... There is a well-established body of inquiry into auction theory as an efficient price formation process following seminal studies by Vickrey (1961) and Riley and Samuelson (1981), while the competitive mechanisms at work in auctions is also well reviewed in McAfee and McMillan (1987) and Milgrom (Milgrom 1989). In attempts to relax equilibrium price formation constructs on auction outcomes, more recent studies consider constraints affecting participants in auctions, as in practice bidders who opt to contest an auction may also face binding constraints which potentially could influence bidding behavior and auction outcomes (Che and Gale 1996, 1998, 2000Fang and Parreiras 2002;Che et al. 2013;Kotowski and Li 2014). An important constraint is a firm's finances, which is related to its Bability to pay^for the assets at auction Parreiras 2002, 2003;Che et al. 2013;Kotowski 2013). ...
... Very few real estate transactions (public or private) do not exhibit some auction characteristics, as shown by Quan (1994) and Mayer (1998). In many cities and regions governments routinely release land through public auctions or sealed-price tenders, which provides real estate auction data to test empirically auction theory and auction outcomes. ...
This paper tests for the effects of financial constraints on open-bid English land auction prices and bids. It is argued that bidders’ ability to pay, taken as capital resources and/or capital budget constraints, influence bids and final auction prices. While high capital resource developers may elect to bid more than optimal to win auctions, or bidders may elect to pool resources in joint bidding, budget constraints imposed by firm-specific financial variables on the other hand are expected to restrict bids. Land auction data in Hong Kong are used to test systematically these predictions. It is found that a firm’s age, the number of winners in a joint bid, and firm status in the market are positively related to prices, all factors which may be attributed to a firm’s ability to finance the auction price. Firm size, internal funds, financing cost, debt capacity and existing capital expenditure are also shown to affect bids submitted in land auctions: firm size and internal funds are positively related to bid prices; while constrained debt capacity, financing cost and existing capital expenditure lower bids. The results are consistent with predictions that a firm’s financial constraints, and thus its effect on capital budgets, are relevant factors in predicting land auction outcomes. More generally, these findings confirm that similar financial factors that constrain corporate capital investment also influence directly acquisition of assets at auctions.
... Organizations often measure outcomes or results against a predetermined set of targets for component units (e.g., individuals, departments, profit centers, plants). This approach assumes that if all units achieve their targets then the overall strategic goals will be met (Becker and Joroff 2000). Yet, while companies may know how their marketing or manufacturing function is performing, this may not indicate how well the key processes are performing. ...
... Yet, while companies may know how their marketing or manufacturing function is performing, this may not indicate how well the key processes are performing. Functional, results-oriented measures can lead to sub-optimization (Becker and Joroff 2000) and they may undermine an organization's ability to use its' measurement system to improve processes and make better decisions. Bourne et al. (2003, p.4) mean that these measurement systems can be characterized as " …internally focused, backward looking, and more concerned with local departmental performance than with the overall performance of the business " . ...
Supply Chain Management (SCM) is a concept that is gaining in popularity and importance. However, SCM is not a concept without problems. These problems include the lack of a universally accepted definition of SCM, the existence of several different and competing frameworks for SCM, issues with terminology and the relative lack of empirical evidence supporting the benefits attributed to SCM. The purpose for this paper is therefor to bring some clarification to the concept of SCM by exploring some of the more prevalent SCM definitions, frameworks and terminology.
... One of the earliest examples of this technique was the study conducted by Mayer (1998). He undertook such a procedure and found that auction premiums as well as discounts based on this method are more convincing than estimates from an un-differenced hedonic mo del. ...
Findings from existing literature had thrown light that home
prices is a function of the surrounding environment. Living
together with immoral adult establishments and businesses in a
particular neighborhood has generated tense feelings. This has
equally prompted and motivated some people to move out and
relocate to another area. This made some residents having
feelings and concern about their home sale price being affected
and compromised by the presence of such criminals. This study is
aimed at reviewing related previous studies on the effect of these
externalities on the values of adjoining houses with a view to
ultimately identify an unfilled research gap. Quite relevant
literature related to journal articles, seminar papers, conference
proceedings, technical reports working papers and the likes had
been perilously reviewed. The findings of the previous studies
confirmed the notion that the presence of adult business was
connected with depressed selling prices of sold home apartments.
Invariably, greater financial impact occurred with the
establishment of nude clubs, strip clubs, adult cinemas and
sexually oriented business next door to sold homes. The literature
results provide important information for policy makers seeking
to regulate noxious adult businesses and firms operating in this
industry.
... Further studies used large quantities of properties considering as independent variables characteristics like age, construction typology, size quality of finishes, location type of market and the rate of interest of the loan at the time of valuation (Dotzour, 1998). Mayer (2003), Marcus (2001) and Quan (2002) confirmed the conclusions of previous studies showing the differences between the competitive market and auction market. Allen and Swisher (2000) analysing a sample of properties sold at auction in Fort Lauderdale found an inverse relationship between the price and the time on market. ...
For International Valuation Standards (IVS) the estimate of the “forced sale” value implies a value judgment with reference to a degeneration of the market value basis, since “a forced sale” is a description of the situation in which the exchange takes
place, not a distinct basis of value (IVS 2022, Par. 170.1).The paper illustrates a model that can be used to measure the difference between market value and forced sale value, as an aid to real estate valuations related to real estate executions. The proposed method is aimed at determining the difference between the estimated values and the final sales values obtained through the executive process, on the basis of the Short Table Market Comparison Approach (MCA).
... To smooth the matching process, vacant houses are necessary in the long run, and structural vacancy can be explained by market activities. Mayer (1995Mayer ( , 1998 also extends the search model to capture the effects of auctions on housing markets. ...
We present a new conceptual framework to estimate office supply elasticity, where net business survival, physical and economic mismatch are used to identify frictional and structural vacancy. Alongside regulatory and geographical constraints, we also find an unobserved feature of supply elasticity linked to natural vacancy. Our results confirm that US Metropolitan Statistical Areas are generally supply inelastic and the search and matching process plays a key role in supply dynamics. In the least inelastic markets, investors tend to be more flexible to respond to negative demand shocks. As a result, we observe a reduction in structural vacancy and a subsequent increase in cyclical vacancy given the slow short-term movement in absorption. These findings also shed light upon office market dynamics during the COVID-19 period.
... By comparing different international markets, Susilawati and Lin (2006) have shown that in most cases analysed a discount on the hammer price is detected, with the exception of the Australian and Irish contexts, characterized, instead, by the formation of a value bonus in the selling price. The relationship between the forced sales segment and the free market has often been examined in literature in an attempt to understand the dynamics behind the formation of the award price in terms of premium / discount (Mayer, 2003;Marcus, 2001;Quan, 2002). ...
The present research has focused on the development and experimentation of a model for the forced sale value determination. With reference to six study samples consisting of residential properties sold through judicial auctions between November 2020 and May 2021 and each of them located in an Italian region, the forced sale price, the market value assessed by a judicial valuer and the main influencing factors have been detected. The implementation of an econometric technique has allowed to obtain models for the forced sale value assessment and for the analysis of the factors that mostly influence the final hammer price and, therefore, the discount between the market value evaluated and the judicial price. In the context of the existing literature, the study represents the first attempt that proposes a quantification of the discount/premium coefficient based on the specific factors of the property, in order to provide a reliable assessment of the forced sale value.
... In the Singaporean market, Chow et al. (2015) found that auctions sell at a higher price in boom markets, with the premium depending on the property type. In the case of the US (in which auctions are often associated with distressed properties that sell at a discount), Mayer (1998) found that auctioned properties sold at discounts of up to 9 percent in Los Angeles during the real estate boom of the mid-1980s, while similar properties sold at discounts of between 9 and 21 percent during the real estate bust in Dallas in the late 1980s. These results are consistent with the notion that auctions are associated with discounts in down markets (Mayer (1995). ...
Purpose
This paper aims to investigate the likelihood and price effects of auction hijacking – transactions conducted before a planned auction – in the residential real estate market.
Design/methodology/approach
Using a sample of 84,203 residential properties in Oslo, Norway for the period 2007–2017, the authors employ a probit sales choice model to study the likelihood of auction hijacking and hedonic models, fixed effects models and propensity score matching to investigate the price effects.
Findings
The authors find that auction hijacking is more likely to occur in periods of higher market activity and that hijacked auction properties sell at a premium of approximately 4% compared with properties sold at regularly conducted auctions. One possible explanation for the premium could be that risk aversion among buyers leads to a higher likelihood of hijacking offers and higher prices due to the risk reduction premium that sellers can extract.
Originality/value
For most households, buying a home is an investment of great economic significance, and understanding the different aspects of the auction is paramount for both buyers and sellers. Policymakers need to be aware of the market effects from auction hijacking and determine whether restrictions should be introduced.
... From a theoretical perspective, although early studies on reserve prices did not fully account for reference price effects, they recognized how reserve prices influence the property valuation and willingness-to-pay (WTP) of bidders (Milgrom and Weber, 1982;Vincent, 1995). Mayer (1998) also indicates that reserve prices are set low in order to provide little information to sellers and not place binding constraint on bids, even though the units with a published reserve price should theoretically elicit slightly higher prices. One of the first theoretical models of reserve prices in auctions is that proposed by Rosenkranz and Schmitz (2007). ...
This study examines whether the reserve prices in court auctions of residential real estate in Seoul, Korea result in reference price effects by influencing the amount of the successful bid. We also explore whether the sensitivity of these reference price effects differ with housing size and assess whether the expected rate of the selling price can be predicted based on the different reserve price levels. The panel data estimates presented herein show that reserve prices positively influence the final property transfer prices; in other words, the reserve prices yield strong reference price effects. The results of the ordinary least square regressions show that the sensitivity of the reference price effects differs with housing size, albeit in an inconsistent manner. Finally, the response surface methodology analysis indicates * Corresponding author 76 No, Kim and Yu that different reserve prices lead to different reference price effects with locality across the Seoul metropolitan area. The study thus provides courts and bidders with the means to predict the potential rate of the selling price, which will be useful for decision making in auctions.
... They find that bidder turnout and market conditions, as well as the choice of auctioning agent, are all important factors in explaining successful auction sales, defined as sales that exceed the reservation price of the seller. Mayer (1998) examines the use of auctions to sell real estate in the U.S., noting at the outset that auctions are typically used to liquidate distressed properties, rather than for "normal" transactions. Using data from Los Angeles during the 1990s market downturn and Dallas during the 1980s market downturn, he estimates repeat sales indices that houses sold at auction sold at discounts ranging from 0-20% compared to non-auction sales. ...
This paper uses hedonic regression to examine prices in the Christchurch housing market before, and after, the recent severe earthquakes. Prices were relatively stable prior to the earthquakes but increased rapidly thereafter, consistent with the contraction of supply and increased demand from displaced households and a net influx of workers involved in the rebuilding effort. In addition, we find that the use of auctions increased after the earthquakes and that auctioned properties command significantly higher prices as compared to other sales methods, helping to explain the increased interest in this form of price discovery. Results are robust after correcting for potential sample selection bias.
... All the results are similar to and confirm the results in Exhibits 5 and 6. 6 Discussion and concluding remarks In many countries, such as the United States, real estate auctions are traditionally associated with distressed sales and foreclosures, as a method for a last-resort sale (Dotzour et al., 1998). Mayer (1995 predicts that it could be profitable for the seller to arrange auctions in cases where multiple potential buyers signal their interest, particularly in a boom, but finds that auctioned properties in the US sell at a discount, and more so in a bust market (Mayer, 1998). Since many US studies are focused on bust periods, and auctions are not so widespread, the data and market used in our paper, where all dwellings are sold by English auction, allow for a better assessment of the auction process. ...
Existing residential homes in Norway are sold by English auctions. This provides an exclusive opportunity to examine opening bid strategies for high-valued objects. Using unique data from surveys and auction journals, we find that the direct price effect of a high opening bid is stronger than the intimidation effect. A higher opening bid is associated with an overall higher price premium in OLS and fixed-effects regressions. Our results have implications for both buyers and sellers in situations where auctions and auction-like sales mechanisms are used, and for policy makers regarding auction process rules and market regulations.
... In this regard, in American literature, several scholars have demonstrated how real estate sales at auction are characterized by discount compared to free negotiation of the market. Mayer (2003), Marcus (2001) and Quan (2002), consistently with Dotzour et al. (1998), highlighted the difference between the use of the American auction market and the Australian one, considering the substantial difference between the free competitive market and foreclosed sales in the national system. Allen and Swisher (2000) analyzed a sample of properties in Fort Lauderdale finding that they are sold at a discount, and considered whether the order of sale of the auctioned properties affects the observed prices. ...
The purpose of the paper is to investigate the main causes of discount between list price and forced sale value in the Italian real estate auction segment, in favor of more comprehensive determination of the value of mortgage underlying guarantees; this would allow for an improvement of further valorization processes of assets intended to obtain a higher selling price.
Starting from the results of existing literature, an ordinary least squares regression analysis was conducted in order to point out the main determinants of the discount between list price and forced sale value. It has been verified, when sampling 225 cases of forced residential property sales in the South of Italy, that the time constraint of the Italian regulatory framework is more relevant with reference to discount rather than the physical characteristics of assets.
The influence of the duration of procedures is proof that even if recent government initiatives have led to positive results in terms of reducing the length of procedures, this is not yet satisfactory compared to other European contexts. This provides evidence of the need for further interventions aimed at improving the efficiency of the procedural system, also encouraging recourse to other options that lead to ease judicial burden.
... The auction method for selling properties has been studied extensively in the literature (c.f. Allen and Swisher, 2000;Dotzour et al., 1998;Mayer, 1998;and Lust, 1996.) 6 . However, most of these studies focus on property markets rather than land markets. ...
... Once we allow for differences between high-rise and mid-rise developments, we find differing sales sequence effects on price. This contrasts with Mayer (1998) who finds no evidence of the declining price anomaly for condominium sales in Los Angeles from 1970 to 1991 and for both condominium and single-family home sales in Dallas from 1970 to 1991. ...
This paper provides new evidence of sales sequence-real estate price relations in a setting in which consumption risk and completion risk are both minimized and where agglomeration economies do not pertain. The results illustrate that the monotonic declining price “afternoon effect” or rising price from increasing relative demand documented in auction settings do not extend to real estate transactions in open (non-auction) markets. Instead, we find underlying non-monotonic U-shaped and inverted U-shaped sales sequence-price relations for high-rise and mid-rise developments, respectively, when correcting for unit selectivity effects. The results represent price anomalies in that they are evident after removing the effects of previously identified factors associated with sales sequence-price relations.
... Negotiated prices are often falsely reported to affect capital-gains taxes (MOLTMA, 2008;MOLIT, 2012), while auction prices are not falsely reported because of an open-bidding process where all bids are disclosed (Good and Hammond, 2006). Conflicting research exists about whether auctioned houses sell at a premium (Lust, 1996;Quan, 2002;Qu and Liu, 2012), discount (Mayer, 1994(Mayer, , 1998Allen and Swisher, 2000), or neither (Frino et al., 2012) relative to houses sold in regular sales transactions. Nevertheless, the consensus is that real estate auctions reveal the true market value of a property (Knetsch et al., 2001). ...
The objective of this research was to test Tiebout’s (1956) theory of residential segregation without dividing housing observations into submarkets, which causes sample selection bias and degrees-of-freedom problems. To achieve the objective, we used spatial-lag quantile regression along with housing auction data for three Gu (county equivalent in the USA) (i.e., Gangnam, Songpa, and Nowon) in Seoul during January 2006 through December 2012. Our findings suggest that preferences for housing structural attributes that are related with practical necessity (i.e., age, size, and number of floor) do not vary across the quantiles of the price distribution. In contrast, attributes that may be considered as premium amenities (i.e., mountain or river view, number of story of the building, and affluent neighborhoods) tend to vary over the quantiles of the price distribution. Consequently, we do not reject the hypothesis that the Tiebout theory explains the residential segregation that sorts population into different neighborhoods. More specifically, we find the evidence that the residential segregation is determined by more of premium amenities than housing structural attributes of practical necessity.
... To gauge the size of the steady state fire-sale discount in the housing market, this study uses evidence from existing empirical studies. Mayer (1998) finds that housing sales at auctions in the 1980s (generally associated with foreclosure events) sell at discounts of up to 9% in Los Angeles (boom market) and 9-21% in Dallas (oil bust). ...
Expansionary monetary policy can increase household leverage by stimulating housing liquidity. Low mortgage rates encourage buyers to enter the housing market, raising the speed at which properties can be sold. Because lenders can resell seized foreclosure inventory at lower cost in such a hot housing market, ex-ante they are comfortable financing a larger fraction of the house purchase. Consistent with this mechanism, this study documents empirically that both the housing sales rate and loan-to-value ratios increase after expansionary monetary policy. Calibrating a New Keynesian macroeconomic model to _t the response of housing liquidity to monetary policy, the interaction between credit frictions and housing market search frictions generates endogenous movements in the loan-to-value ratio which amplify the economy's response to monetary policy.
... Many studies on auction markets for houses focus on the auction price determinations. Mayer (1994Mayer ( , 1998 and Allen and Swisher (2000) empirically find that the auction prices of houses tend to be discounted from their normal market prices, while Lusht (1996), Quan (2002) and Qu and Liu (2012) find that auction prices are higher than market prices. Frino, Peat, and Wright (2011) find no significant statistical difference between the auction prices and market prices of houses. ...
This paper estimates house price determinants in the Korean housing market, focusing on Seoul and employing the method of a quantile regression of a hedonic price model. With this quantile regression approach, how implicit prices of housing characteristics vary in each quantile of house prices is investigated. The data sample for this paper comprises court auction data collected from district courts of Seoul between 2006 and 2012. The hedonic variables employed in this research include building age, size, floor height, and floor level, proximity to metro station and high school and scenic view. As dependent variables, house prices in three sub-regions of Seoul are considered. Those prices between before and after the 2008 financial crisis are compared to determine the impact of the crisis. The empirical analysis finds that school proximity has the largest effect on the prices among dummy variables and that the level of the effect is larger in lower quantiles (lower-priced houses). By contrast, scenic view has a larger effect in higher quantiles (higher-priced houses), while its effect is statistically insignificant in lower quantiles. The effects of both school proximity and scenic view are also found to decrease in magnitude after the crisis.
Land management system is an underlying factor for rapid urbanization. The urban land lease policy of Ethiopia is considered the most influential policy, where leasing is through auction or negotiation. This study examines its implementation using land auction data in Addis Ababa, one of the fastest growing city in Sub Saharan African Countries. The result suggests a high divergence between land-auction guide and sale prices. The study found that the urban land market is not just driven by economic rationale, it is also determined by non-economic factors. The findings imply that the land market is not only exposed to speculations but also its urban land acquisition is majorly a secondary market, with no policy-ground.
This paper provides empirical evidence that a strong statutory right of redemption leads to a statistically significant and an economically large impact in reducing bankruptcy filings. Under the statutory right of redemption, borrowers can repurchase the property after the foreclosure auction at a certain price. Implementations of the statutory right of redemption, however, vary substantially among states. When categorizing the redemption rights from an economic perspective, we find that a strong redemption right leads to a greater than 30% decrease in the odds that a borrower with a defaulted mortgage will file for bankruptcy.
We provide a new framework for using text as data in empirical models. The framework identifies salient information in unstructured text that can control for multidimensional heterogeneity among assets. We demonstrate the efficacy of the framework by reexamining principal-agent problems in residential real estate markets. We show that the agent-owned premiums reported in the extant literature dissipate when the salient textual information is included. The results suggest the previously reported agent-owned premiums suffer from an omitted variable bias, which prior studies incorrectly ascribed to market distortions associated with asymmetric information. (JEL D82, G14, R00)
Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
ANALISIS FAKTOR-FAKTOR YANG MEMPENGARUHI KEBERHASILAN LELANG EKSEKUSI HAK TANGGUNGAN PADA KANTOR PELAYANAN KEKAYAAN NEGARA DAN LELANG PALU (2015 - SEPTEMBER 2016) Agus Susanto, Tri Oldy Rotinsulu, George M.V. Kawung Fakultas Ekonomi dan Bisnis, Magister Ilmu EkonomiUniversitas Sam Ratulangi, Manado ABSTRAKPenelitian ini bertujuan untuk mengetahui faktor-faktor yang mempengaruhi keberhasilan (laku terjual atau tidak laku terjual) lelang eksekusi hak tanggungan obyek property riil di KPKNL Palu. Penelitian ini penting dilakukan karena keberhasilan lelang eksekusi hak tanggungan di KPKNL Palu relatif rendah dan keberhasilan lelang secara langsung akan meningkatkan debt recovery serta penerimaan negara seperti bea lelang, pajak penghasilan pasal 25, dan BPHTB.Data yang diteliti berupa risalah lelang eksekusi hak tanggungan di KPKNL Palu yang terletak di Kota Palu dari tahun 2015 sampai dengan September 2016 dengan mengambil sampel sebanyak 200 transaksi lelang. Metode analisis yang digunakan adalah analisis berganda binari dengan menggunakan model logit.Hasil penelitian menunjukkan bahwa faktor faktor yang berpengaruh positif dan signifikan terhadap hasil lelang eksekusi hak tanggungan di KPKNL Palu adalah lokasi, aksesibilitas, penyelenggara pra lelang dan cara penawaran lelang. Kata Kunci : Keberhasilan lelang eksekusi Hak Tanggungan, Hasil Lelang, Laku atau Tidak Laku terjual, Properti Riil ABSTRACTThis study aims to determine the factors that influence the success (sold or not sold) mortgage auction of real property objects in KPKNL Palu. This research is important because the success of real property mortgage auction in KPKNL Palu relatively low and the success of the auction will directly will increase debt recovery and also state revenues such as auction fee, income tax and real estate tax.The data used in this research consist of real property mortgage auction in KPKNL Palu located in the city of Palu from 2015 until September 2016 by taking a sample of 200 transactions auction. The binary multiple regression method with logit model used to analysis in this researchThe result of this research show that significant factors influencing mortgage auction outcome in KPKNL Palu are location, accessibility, pre-auctioning houses and way bidding. Keywords : Succesfull of Mortage Auctions, Auction Results, Sold or Unsold, Real Property
This article analyzes auctions that can feature two bidding rounds for the sale of a single good. In the first round the seller, after analyzing the received bids, may elect to have k bidders rebid. The highest bidder in the second round then acquires the asset at the highest bid price. We use a sample of 67 properties that sold through this auction process. The 40 hotels in this sample are matched to a control group of 157 hotel properties that were sold in the conventional manner in order to develop a hedonic model for ”conventional” sale prices. Using this model, we find that the double round auction mechanism increases the seller's expected revenue significantly: specifically, in our sample, we estimate that the expected value of a double round auction bid is 8.4% higher than the estimated price if the property were sold using traditional methods. In addition, we show that the average bid is not significantly different from the estimated sale price. We further find (controlling for property characteristics) that the average bid increases by 3.7% from the first to the second round.
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The empirical paper studies the relationship between property value and hedonic attributes. To identify the determinant characteristics the influent the private real estate price, their degrees of significance and help with the valuation procedure, 8870 private residential property transactions with caveats lodged across the country are selected from Urban Redevelopment Authority of Singapore. 40 models are tested and RMSE, R-Square, Adjusted R-Square, F-Value tests are performed to discover the overall fitness of the models. Breusch-Pagan F-Test is performed to test the existence of heteroskedasticity and VIF test to check multicollinearity. Z score is performed to check the spatial autocorrelation. Three founding are discovered. Firstly, size, age, floor level, population density level, latitude and construction status are core attributes resulting from the regression. Secondly, new district zones classified by functions are detected instead of 28 administrative districts. Thirdly, government policies and local customs (Feng Shui) are proven to be determinant variables as well. Two suggestions are given to regulate the market at the end of this article.
We study efficient auction design for a single indivisible object when bidders have interdependent values and non-quasilinear preferences. Instead of quasilinearity, we assume only that bidders have positive wealth effects. Our setting nests cases where bidders are ex ante asymmetric, face financial constraints, are risk averse, and/or face ensuing risk. We give necessary and sufficient conditions for the existence of an ex post implementable and (ex post Pareto) efficient mechanism. These conditions differ between the standard case where the auctioneer is a seller and when the auctioneer is a buyer (a procurement auction).
When the auctioneer is a seller, there is an efficient ex post implementable mechanism if there is an efficient ex post implementable mechanism in a corresponding quasilinear setting. This result extends established results on efficient ex post equilibria of English auctions with quasilinearity to our non-quasilinear setting. Yet, in the procurement setting there is no mechanism that has an efficient ex post equilibrium if the level of interdependence between bidders is sufficiently strong. This result holds even if bidder costs satisfy standard single crossing conditions that are sufficient for efficient ex post implementation in the quasilinear setting.
Municipalities regulate sexually oriented businesses (SOBs) through the “secondary effects” doctrine, which justifies limiting First Amendment speech protections inside SOBs. Negative effects of SOBs on nearby neighborhood quality is a frequently cited secondary effect. Little empirical evidence exists that SOBs generate such negative externalities. If SOBs generate negative externalities then nearby property prices should decrease when a strip club opens. We estimate regression models of housing prices to determine the effect of new clubs on nearby residential property prices in Seattle, exploiting the termination of a 17 year moratorium on openings and find no evidence that strip clubs have “secondary effects.”
This paper incorporates text data from MLS listings into a hedonic pricing model. We show that the comments section of the MLS, which is populated by real estate agents who arguably have the most local market knowledge and know what homebuyers value, provides information that improves the performance of both in-sample and out-of-sample pricing estimates. Text is found to decrease pricing error by more than 25%. Information from text is incorporated into a linear model using a tokenization approach. By doing so, the implicit prices for various words and phrases are estimated. The estimation focuses on simultaneous variable selection and estimation for linear models in the presence of a large number of variables using a penalized regression. The LASSO procedure and variants are shown to outperform least-squares in out-of-sample testing. Copyright
In this paper we analyse how institutional sellers within the privatisation process shape price formation in agricultural land markets by taking the German reunification as an example. These institutions sell the formerly state owned land within first-price sealed bid auctions, publish calls and obtained prices, and are hypothesised to exploit their market power. Based on the conceptual framework of hedonic pricing models, we use a spatio-temporal modelling approach to empirically quantify these impacts. We thereby control for land productivity characteristics, potential buyers and whether farmers purchase the land. We find that privatisation agencies sell at significantly higher prices, while one agency sells at lower prices to farmers.
The aim of the paper is filling the gap in the existing Italian literature on the quantitative determination of FV. The concept of FV is generally defined in comparison to the Market Value (MV) of a property. By an empirical investigation, we identify the quantitative relationship existing between these two types of value and analyze the determinants of the Italian real estate forced sale auction market.
The popularity of an auction as a means of selling residential real estate has increased markedly in recent years. The effectiveness of an auction program is heavily promoted by most real estate agents, claiming it to be the best means of attracting the best price from the highest bidder, It is based on the theory of gathering all buyers together at a publicised time, and then offering the property for sale to the open market.
In theory, the person most willing to buy the property will have the highest bid, supposedly agreeing at market value with the vendor (although above the vendor's reserve I. Unfortunately, the practice of dummy bidding has recently resurfaced and highlights serious flaws in the auction system, with hundreds of residential auctions conducted across Australia every weekend.
Clearly, it is in the vendor's best interests land the auctioneer's best interests, who is paid even more by the vendor if the price is higherl to achieve the highest offer from the last bidder. The tactic of dummy bids is designed to deceive genuine purchasers into a false sense of perception, where there appears to be more competition for the property than there actually exists.
This paper examines the auction process with the emphasis placed on the practice of dummy biding, It considers the broad implications for the definition of market value and also the overall residential market. Useful advice is also included for real estate valuers relying upon auction sale properties in their market analysis. As well as strongly supporting the auction concept, the authors suggest improvements to the overall auction process to ensure relevance to the definition of market value is maintained.<br /
This paper investigates whether the bidding induces the occurrence of herding, and analyses the effects of behavioural factors, information, and fundamental characteristics of real estate on the performance of bank auction. Our sample is from July 2001 to January 2003, the real estate that intermediaries sold was held by bank in Taiwan, including 363 the real estate and the price of bidding under bank auction. We obtain some interesting implication. First of all, we find that herding of bidding not only explains premium but also discount. However, the characteristics of real estate and information effects just explain part of them. For the strategy of reserve price by the vendor, the higher discount is to encourage bidding actively, which is consistent with the view of Welch (1992). Besides, we find optimism of bidder affects neither premium nor discount. The auction with high levels of bidder recognition caused by media concern offers significantly smaller premium. The strategy of jump bidding affects not only premium but also discount. All three factors could not weaken the explanatory power of herding of bidding. Secondly, we find bidders could easily reduce search cost by observing the bidding of competitors, and herding of bidding on the auction process could enhance efficiency of information aggregation. Furthermore, herding of bidding makes the performance of auction different between court and bank. Finally, we overcome the selective bias and find the real estate held by bank had poor performance under court auction; however, the real estate held by court had better performance under bank auction. This implies the mechanism of court auction should be transformed into the open-outcry bidding in order to achieve effective recovery of debt and the policy of reducing losses.
The fact that local governments rely heavily on land finance has fostered the emergence of "land lease price champion" in many cities across the country through land auctions and land auctions are most likely to cause excessive land auction premium. This paper focuses on residential and commercial land lease transactions in Beijing for a period from 2003 to 2010 and studies the driving forces of the observed land auction premium using hedonic pricing methodology. Results show that land use purpose, floor-to-site ratio, location, the type of land bidder and distance to city center significantly impact the land auction premium. Comparing with private real estate companies, state-owned real estate firms exert more impact on land auction premium. Another finding is that part of the stimulus package released in 2009 to cope with the economic crisis has been directed to land market through state-owned real estate firms that pushes up the land prices.
Despite its existence in the property market scene for over a century, little is known about the property auction market in Malaysia. We analyze the types, size, occurrence, and performance of property auctions in Malaysia. In comparison to mature markets such as Australia and New Zealand, the auction market in Malaysia is relatively small (0.03% of total property sales) and dominated by distress or foreclosure sales. Outdated laws coupled with an unregulated auction environment have generated myriad challenges among which are the presence of syndicates (dummy bidders) and negative stigma associated with auctions. We highlight initiatives that could be taken by policymakers to revitalize the property auction market in Malaysia.
This paper examines the impact of the auction process of residential properties that whilst unsuccessful at auction sold subsequently. The empirical analysis considers both the probability of sale and the premium of the subsequent sale price over the guide price, reserve and opening bid. The findings highlight that the final achieved sale price is influenced by key price variables revealed both prior to and during the auction itself. Factors such as auction participation, the number of individual bidders and the number of bids are significant in a number of the alternative specifications.
When owners stop paying property taxes, a government forecloses on the property. This research compares outcomes after auctions, the common way governments sell tax-reverted property, with outcomes after sales from a city department and a land bank authority. Data on a random sample of sold properties came from field research and administrative sources. Auctions failed in returning property to reuse compared to other ways of selling tax-reverted property. Managed sales led to more owner-occupied homes, additions of side lots to homes and businesses, and redevelopment and reuse as well as fewer returns to foreclosure and less property flipping.
Real estate, private equity, arts, and even wine are gaining increasing popularity as capital investments. Attractive risk-return profiles and high diversification potentials make them valuable additions to investment portfolios. Their main drawback, however, is the low level of liquidity. Such assets cannot be bought or sold quickly without compromising large portions of their value. Despite its high practical relevance, this issue has so far received only little attention from researchers. Jaroslaw Morawski offers a practicable and theoretically well-founded solution to the problems encountered when investing in illiquid assets. Building on the Theory of Search, the author develops a model of the liquidation process for this category of investments. He uses the model to propose a number of methods for measuring liquidity, optimizing exit strategies, and allowing for liquidity in the traditional mean-variance portfolio selection. The result is a coherent investment decision framework designed specifically for private real estate but applicable also to other illiquid assets. © Gabler GWV Fachverlage GmbH, Wiesbaden 2008. All rights reserved.
This chapter surveys the literature on the microstructure of housing markets. It considers one-sided search, random matching, and directed search models. It also examines the bargaining that takes place once a match has occurred, with the bargaining taking various forms, including two-party negotiations of different types and multiparty housing auctions. The chapter reviews research on real estate brokers as intermediaries as well, focusing on the role of brokers in the matching and bargaining process, the nature of competition and entry in the brokerage industry, and the incentive issues that are present. The chapter also considers the inefficiencies that pervade the brokerage industry and the related policy debates. These are important issues both because of the inherent importance of housing and brokerage and because of the importance of housing to macroeconomic dynamics.
An experimental laboratory simulation of property sales and management was used to study auction and tender bidding behaviour. The simulation creates a model property investment environment where subjects have the opportunity to purchase property, but must then manage it profitably to succeed.The experiment revealed that in a well-informed, mildly optimistic market, tender sales returned prices close to rational capitalised values, whereas auction sales returned premiums. Moreover, when sets of properties are auctioned in succession in a single auction session, there appears to be a learning effect on prices. The paper relates the experiment to the developing literature on the behavioural study of property auctions.
Since 2004, two auction mechanisms - listing auctions and tender auctions - have played a dominant role in land lease arrangements for real estate development in Beijing. Listing auctions in land markets are similar to general English auctions, where bidders offer the highest price to win. However, in tender auctions, winners are determined by the bidding price and the bidder’s financial capability and reputation. Based on granted land parcels from 2006 to 2012 in Beijing, this paper attempts to examine the price differences between the two auctions and the role of land auction in urban development and price stabilisation. We find that land policy in Beijing, which aims to stabilise land prices and to provide low-price residences, has been integrated with urban development planning in terms of spatial and density pattern. Land leasing in Beijing is not only a land policy but also a part of the strategy framework of local development.
This study considers the role that reserve prices may play in residential property auctions. In comparison to much of the previous empirical work, this study has access to undisclosed reserve prices from English auctions. Consistent with theoretical arguments in the auction literature, the results obtained illustrate that while higher reserve prices increase the revenue obtained for the seller, they also reduce the probability of sale. The findings also highlight the importance of auction participation, with the number of individual bidders and the number of bids significant in most specifications.
A sound strategy for real estate asset disposition is of paramount importance to the Resolution Trust Corporation (RTC) in its efforts to maximize costs resulting from the savings and loan bailout. A popular current approach to this problem is to employ expeditious sales structures such as auctions. Although auctions clearly speed up the disposition process, it is unclear whether they maximize net revenues. This paper analyzes the potential of auction structures to maximize sales revenue when such structures are applied to RTC commercial and residential real estate assets.Absent political constraints, we conclude that auctions are usually inferior to traditional listing and broker sales channels. For the commercial real estate sector, this conclusion is based on the prominence of information‐acquisition costs, on market thinness on the buyer side, and on continued uncertainty regarding local economic recovery. Our conclusion for the residential real estate sector is based on the degree of property concentrations and the apparent inferiority of auctions for residential properties in weak markets. A recognition of short‐term political reality bolsters the case for auction approaches; however, the RTC should clearly stop promoting an image that it wishes to “sell, sell, sell.”
The influence of groups such as real estate agents on the operation of local housing markets has been a consistent theme in urban studies. In Melbourne, an increasing incidence of property sales by means of open auctions is the result of a sustained campaign by the real estate industry. Such sales have substantial benefits for the agents and alter many of the strategies for buying adopted by both buyer and seller. However, it is apparent that there are a number of unintended impacts including making the purchase of housing more difficult or risky for some groups. The practice of auctioning is seen to be an active element in determining housing access and the basis for social change within neighbourhoods subject to a high incidence at auctions. Thus the actions of agents can be seen to have far reaching effects in terms of the socio-spatial outcomes of the housing market.
In past Outer Continental Shelf oil and gas lease sales, winners of drainage tracts have tended to realize a higher economic return than winners of wildcat tracts. This paper finds empirical support for the hypothesis that adjacent lessees have an information advantage when bidding for drainage tracts under the cash bonus bidding system. This leads to superior economic returns, and thus explains the difference in returns between wildcat and drainage leases. The paper concludes that this difference and its cause do not pose a policy problem given empirical evidence that the government receives fair market value for the two lease categories combined.
A sequential auction of commercial properties produced evidence that bid timing matters. Prices declined as the auction proceeded, an outcome consistent with expectations when bidders are either risk averse or quantity constrained. Copyright 1994 by Kluwer Academic Publishers
When many similar properties are being auctioned, auctioneers often resort to the pooled design. The winning bidder of a given round is given a choice among all the unclaimed (pooled) properties. Bidding strategy depends on expectations of rival bidders' behavior as well as personal valuation. Anecdotal evidence from condominium auctions suggests that bidding decisions can produce price anomalies. This study develops a simple theoretical model with three active bidders and three units for sale to show how such anomalies may emerge. Estimation is then made of a hedonic price model using data from a condominium auction of 53 units on three separate dates. The empirical results support the view that the best buys are found in the middle of the auction with over-payments at the beginning and end. Copyright 1992 by Kluwer Academic Publishers
The issue of choosing to sell property by auction or by traditional negotiated search markets is addressed in this article. A general selling institution called the slow Dutch auction is introduced. This general selling mechanism reduces to either a conventional auction, a posted offer, or some time dependent mix of these selling institutions depending on the pricing rule chosen by the seller. The authors model search by having potential buyers whose private valuation for the property is unknown to the seller arrive randomly over time. With this general framework the seller's problem is to choose a selling mechanism that maximizes expected wealth. Surprisingly, they find that the optimal selling institution is always a posted.offer market. The seller chooses an optimal posted price and waits until a buyer arrives who is willing to pay this price. Auctions are never optimal. Copyright 1992 by Kluwer Academic Publishers