VARIABLES AFFECTING THE PREMIUM OF AUCTION SALES

Abstract

Auction is gaining much popularity as a method of sale for real estate. Previous studies have proven that auction is able to achieve a higher transaction price as compared to private treaty sale. Most researches have focused on the comparison of the selling methods via auction and private treaty and the factors affecting the auction prices of residential properties. This study will seek a different approach by estimating the variables affecting the premium of auction sales and evaluating the influence of these variables. In addition, an indicative price is used to estimate the unknown reserve price. The research project is based on a sample size of 414 private residential properties, which comprises condominium, terrace, semi-detached and detached houses that were sold as mortgagee's sales over a period of almost 5 years from 1Q1999 to 1Q2003 in Singapore. In the first part of the research, auctioneer's pricing strategy in setting opening price, the state of market and two of the auction houses (DTZ Debenham Tie Leung and Jones Lang LaSalle) are found to be significant factors affecting the premium of auction sales. The second part of this research presents an analysis and evaluation of the variables that affect the premium of auction sales significantly. An understanding of these variables is an alternative to reduce some uncertainties present in an English ascending bid auction where reserve price is kept confidential. Auctioneer could use the finding as a reference to increase premium for sellers while buyers could be better equipped in controlling their bidding limit when entering the opportunistic private residential auction market.