Testing for Price Anomalies in Real-Estate Auctions

A study was conducted to test for price anomalies in US real estate auctions. The study compared the condominium prices paid in face-to-face bargaining with the prices fetched for identical condominium units sold at a real estate auction in New Jersey. The findings indicate that auction prices for i...

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Bibliographic Details
Published in:The American economic review 1992-05, Vol.82 (2), p.501-505
Main Authors: Ashenfelter, Orley, Genesove, David
Format: Article
Language:English
Subjects:
Antiques
Auctions
Bargaining
Bid price
Bid prices
Business orders
Buyers
Cloisters
Comparative studies
Condominiums
Discounts
Empirical evidence
Empirical Evidence on Auction Theory
List prices
Prices
Real estate
Real estate auctions
Regression analysis
Resale
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Summary:A study was conducted to test for price anomalies in US real estate auctions. The study compared the condominium prices paid in face-to-face bargaining with the prices fetched for identical condominium units sold at a real estate auction in New Jersey. The findings indicate that auction prices for identical units were 13% higher than for units subsequently sold in face-to-face bargaining. Moreover, the price decline obtained by face-to-face bargainers was not independent of the order in which the units were auctioned. Face-to-face buyers achieved higher discounts relative to auction buyers who purchased early in the auction, confirming the declining price anomaly. Taken together, these results indicate that the optimal strategy for a risk-neutral condominium buyer is to make a purchase well after the auction has begun and, ideally, after the auction has been completed.
ISSN:0002-8282
1944-7981