The Role of Auctions and Negotiation in Housing Prices

David Genesove and James Hansen

No 11392, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 sellersÂ’ 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.

Keywords: Auctions; Bargaining; Housing prices (search for similar items in EconPapers)
JEL-codes: D44 L11 R31 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (1)

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