Working Paper: NBER ID: w30760
Authors: Kristle Corts; Mandeep Singh; David H. Solomon; Philip Strahan
Abstract: In Australian real estate markets, about a third of properties are sold at auction. We show that properties that fail auctions sell later for a 2.6% discount. This effect increases for properties failing multiple auctions and when no bids are made. Consistent with a causal channel, the effect holds when auction failure is instrumented by the tendency of owners to anchor on nearby better properties (and thus set reserve prices too high). Prices cluster just below salient round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics. We test for several mechanisms and conclude that most of the pricing discounts reflect stigma, which reduces potential buyers’ willingness to pay.
Keywords: house prices; auction failure; stigma; real estate; psychological factors
JEL Codes: G40; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Auction failure (D44) | lower subsequent property prices (R31) |
| Stigma (J70) | lower sale prices (R31) |
| Auction failure (D44) | lower sale prices (R31) |
| Effect of auction failure diminishes over time (D44) | stigma fades (Y70) |
| Properties with low predicted prices or low amenity values (R31) | less likely to sell at higher prices when listed for auction (D44) |