Bidding strategies and winner’s curse in auctions of non-distressed residential real estate

Rosane Hungria Gunnelin (rosane.gunnelin@abe.kth.se)
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Rosane Hungria Gunnelin: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Real Estate Business and Financial Systems, Teknikringen 10B, 100 44 Stockholm, Sweden

No 20/13, Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: This paper analyzes how listing price and bidding strategies impact sales prices in non-distressed residential real estate auctions. Furthermore, the paper is the first that tries to explicitly quantify how these strategies affect the probability of a winner’s curse in such auctions. The findings support the results in the general auction literature that the winning bid and the probability of a winner’s curse is increasing in the number of bidders. The results further supports the notion of “auction fever” since high paced auctions (where unexperienced bidders may resort to emotional bidding) increases selling price and the probability of a winner’s curse. The results with respect to jump bidding and list price setting are mixed. Jump bidding has the intended effect of scaring off bidders, but not sufficiently to reduce the winning bid and the probability of a winner’s curse. Lowering the list price to market value ratio (the degree of underpricing) increases the number of bidders, but not sufficiently to counteract the anchoring effect of the list price leading to a reduction of the winning bid and the probability of a winner’s curse. In summary, the findings in this paper show that the unfolding of auctions of non-distressed residential real estate has a significant impact on selling price and the probability of a winner’s curse.

Keywords: Housing; Auctions; List price; Bidding strategies; Winners curse (search for similar items in EconPapers)
JEL-codes: D44 G41 R31 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2020-10-14
New Economics Papers: this item is included in nep-des, nep-exp, nep-gth and nep-ure
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