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A Statistical Explanation for Extreme Bids in the House Market

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  • Eric J. Levin

    (Department of Urban Studies, University of Glasgow, 25 Bute Gardens, Glasgow, G12 8RS, UK, e.levin@socsci.gla.ac.uk)

  • Gwilym B. J. Pryce

    (Department of Urban Studies, University of Glasgow, 25 Bute Gardens, Glasgow, G12 8RS, UK, g.pryce@socsci.gla.ac.uk)

Abstract

This paper proposes a simple statistical explanation for the phenomenon of extreme bids. During a boom, the housing market regime switches from a single bidder to a multiple bidder environment. The sale price in a multiple bidder auction is the maximum bid and the distribution of maximum bids contains a much higher proportion of extreme bids compared with the distribution of single bidder valuations. While this theory does not preclude behavioural explanations of extreme bids, it does demonstrate that a world free from strategic and idiosyncratic behaviour would not be a world free from extreme bids during boom periods. Therefore, when gauging the impact of strategic or idiosyncratic behaviour (either hypothetically or empirically) one has to measure the effect against a baseline regime where extreme bids are inevitable, not against a world that is free from extreme bids.

Suggested Citation

  • Eric J. Levin & Gwilym B. J. Pryce, 2007. "A Statistical Explanation for Extreme Bids in the House Market," Urban Studies, Urban Studies Journal Limited, vol. 44(12), pages 2339-2355, November.
    • Handle: RePEc:sae:urbstu:v:44:y:2007:i:12:p:2339-2355
    DOI: 10.1080/00420980701540903
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    References listed on IDEAS

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    Cited by:

    1. Stanley McGreal & Paloma Taltavull de La Paz & Valerie Kupke & Peter Rossini & Paul Kershaw, 2016. "Measuring the influence of space and time effects on time on the market," Urban Studies, Urban Studies Journal Limited, vol. 53(13), pages 2867-2884, October.
    2. Gwilym Pryce, 2011. "Bidding Conventions and the Degree of Overpricing in the Market for Houses," Urban Studies, Urban Studies Journal Limited, vol. 48(4), pages 765-791, March.
    3. Nan Liu, 2021. "Market buoyancy, information transparency and pricing strategy in the Scottish housing market," Urban Studies, Urban Studies Journal Limited, vol. 58(16), pages 3388-3406, December.
    4. Gwilym Pryce, 2013. "Housing Submarkets and the Lattice of Substitution," Urban Studies, Urban Studies Journal Limited, vol. 50(13), pages 2682-2699, October.
    5. Chien-Ming Yu & Pei-Fen Chen, 2018. "House Prices, Mortgage Rate, and Policy: Megadata Analysis in Taipei," Sustainability, MDPI, vol. 10(4), pages 1-23, March.
    6. Haurin, Donald & McGreal, Stanley & Adair, Alastair & Brown, Louise & Webb, James R., 2013. "List price and sales prices of residential properties during booms and busts," Journal of Housing Economics, Elsevier, vol. 22(1), pages 1-10.
    7. Liv Osland & Kenneth Gibb & Gwilym Pryce, 2011. "Inequalities in Access to Employment and the Impact on Wellbeing: A Criterion for Spatial Planning?," ERSA conference papers ersa10p717, European Regional Science Association.
    8. Eric Levin & Gwilym Pryce, 2011. "A Disequilibrium Model of the Market for Houses: Implicit Selling Time as a Signal of Optimal Holding Periods and Buyer Valuation," Urban Studies, Urban Studies Journal Limited, vol. 48(11), pages 2249-2263, August.
    9. Liang, Cong & Hui, Eddie C.M. & Yip, Tsz Leung, 2018. "Time on market (TOM): The impact of new residential stamp duty," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 1117-1130.
    10. Nan Liu & Deborah Roberts, 2012. "Do Incomers Pay More for Rural Housing?," Environment and Planning A, , vol. 44(8), pages 1986-2005, August.

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