Auctions versus Negotiated Sale: Evidence from Real Estate Sales

We offer a theoretical and empirical comparison of auctions and negotiated sales. We first build a simple model to show that auctions generate a higher relative price than negotiated sales when demand for the asset is strong, when the asset is more homogeneous, and when the asset attracts buyers with higher valuations. Using data from property sales in Singapore, we find support for our theoretical predictions that the auction mechanism obtains a higher relative price in an “up market” than in a flat or down market, in the high-end segment of the property market, and for relatively homogeneous properties than heterogeneous properties.