Assessing the Performance of Real Estate Auctions

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 than expected selling time in a search market against an immediate auction sale. The study finds no evidence of the declining price anomaly.