Content area
Full Text
features
abstract
This study provides a detailed look at the mechanics of the auctions from the Department of Housing and Urban Development (HUD) and demonstrates how auction prices may differ significantly from non-auction prices for the same properties. The results confirm the general notion that, on average, auction properties sell for less than market value, but also show that the discounts may vary significantly across markets.
For many people, the phrase "real estate auction" leads to fantasies about opportunities to purchase properties at deep discounts. Presumably, the only properties on the auction block are those that must be sold quickly due to some urgency on the part of the current owner. If the owner is truly desperate to sell, then auction participants may be able to acquire properties at lower prices than those quoted in private negotiations with less anxious sellers. The purpose of this study is to analyze prices at one such auction, and to compare these with projected market prices had the properties been sold in non-auction transactions.
Auctions of many different types of assets occur frequently around the globe and are sometimes fascinating events both to observe and to participate in. Despite their morbidity, auctions of the remaining possessions of famous (or infamous) people are sometimes considered newsworthy events, possibly because of the relatively high prices the items may bring. For real estate market analysts, auctions can be enlightening (especially those conducted in the English style of oral ascending bids) because they provide a first-hand opportunity to observe a price established in a competitive market.
Under certain conditions, prices at auctions should be equivalent to those in non-auction transactions. Vickrey1 suggests that even if the number of participants in an auction is small compared to the number of bidders interested in the object in a non-auction environment, competition between participants (including the seller) keeps the price at the same level it would be in non-auction situations provided the participants do not engage in collusion, side payments, communications, or signaling that could affect the auction price.
Several recent auction research studies have focused on the micro-structure of the price formation process in auctions for various assets. Studies by Ashenfelter,2 Ashenfelter and Genesove,3 De Boer, Conrad, and McNamara,4 Mayer,5 and Mayer,6...