Price discovery in real estate auctions: The story of unsuccessful attempts

Abstract

Little is known of the effects of the auction mechanism in relation to post-auction market sales. This empirical study of unsuccessful auctions shows that approximately half of these properties were eventually sold via private negotiations, at higher prices relative to last bids. The probability of a subsequent post-auction transaction is significantly higher for apartments and terrace houses and when auction turnout is high; and lower in the absence of any bid and in some years. In addition, downward revisions to the opening bid improve the probability of subsequent sale. Prices of subsequent re-auctioned and privately negotiated sales decline with time to sale, consistent with the search process explanation.