DP11392 The Role of Auctions and Negotiation in Housing Prices

Author(s): David Genesove, James Hansen
Publication Date: July 2016
Keyword(s): auctions, Bargaining, housing prices
JEL(s): D44, L11, R31
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11392

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.