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A model of real estate auctions versus negotiated sales

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  • Christopher J. Mayer

Abstract

Real estate auctions have grown substantially in recent years, emergingas an alternative sales method for many institutions interested in sellinglarge amounts of property quickly. This paper develops a framework for comparing auctions to the more traditional negotiated sales. The model showsthat auctions will sell property at a discount because a quick sale results in a poorer \"match\" between house and buyer, on average, than could be obtained by waiting longer for a buyer. Furthermore, the model predicts that auction discounts should be larger in a down market with high vacancies, and in a smaller market with fewer buyers and sellers, when there is a larger difference between houses. Finally, the auction discount is smaller when property is more homogeneous, because the match between buyer and house matters less in the final price. Many of these results are verified empirically in other research.

Suggested Citation

  • Christopher J. Mayer, 1993. "A model of real estate auctions versus negotiated sales," Working Papers 93-3, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:93-3
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