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Title: The Role of Auctions and Negotiation in Housing Prices

Author(s): David Genesove and James Hansen

Publication Date: July 2016

Keyword(s): auctions, Bargaining and housing prices

Programme Area(s): Industrial Organization

Abstract: Using Sydney and Melbourne transactions, we show that how properties sell matters for housing price dynamics. Auction prices forecast better and display much less momentum than negotiated prices. This is consistent with the two mechanisms transmitting buyer vs. seller shocks to prices differently and, in light of auction and bargaining theories, suggests the source of momentum is sluggishness in sellers? valuations. Other explanations, such as differences in precision, slow diffusion of shocks among buyers, or endogenous selection of the sales mechanism, fail to explain our findings. Our estimates also indicate that sellers have at most equal bargaining power in negotiations.

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Bibliographic Reference

Genesove, D and Hansen, J. 2016. 'The Role of Auctions and Negotiation in Housing Prices'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11392