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An Analysis of the Price Formation Process at a HUD Auction

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Abstract

This study considers whether auctioned properties sell for different prices than they would bring through private negotiation. After reviewing the procedural aspects of HUD auctions, we compare the observed prices of properties sold at one such auction with predicted market values based on assessment ratios for the region to detect any discount or premium. We also consider whether the order of sale of the auctioned properties affects observed prices. We find that sample properties sell at a significant discount relative to predicted market values and that prices tend to increase as the auction proceeds, holding quality of the properties constant.

Suggested Citation

  • Marcus T. Allen & Judith Swisher, 2000. "An Analysis of the Price Formation Process at a HUD Auction," Journal of Real Estate Research, American Real Estate Society, vol. 20(3), pages 279-298.
  • Handle: RePEc:jre:issued:v:20:n:3:2000:p:279-298
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    References listed on IDEAS

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    1. William C. Goolsby, 1997. "Assessment Error in the Valuation of Owner-Occupied Housing," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 33-46.
    2. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    3. Lusht, Kenneth M, 1994. "Order and Price in a Sequential Auction," The Journal of Real Estate Finance and Economics, Springer, vol. 8(3), pages 259-266, May.
    4. Mayer Christopher J., 1995. "A Model of Negotiated Sales Applied to Real Estate Auctions," Journal of Urban Economics, Elsevier, vol. 38(1), pages 1-22, July.
    5. Wilson, Robert, 1992. "Strategic analysis of auctions," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 8, pages 227-279 Elsevier.
    6. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-505, May.
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    Cited by:

    1. Stevenson, Simon & Young, James & Gurdgiev, Constantin, 2010. "A comparison of the appraisal process for auction and private treaty residential sales," Journal of Housing Economics, Elsevier, vol. 19(2), pages 145-154, June.
    2. Takako Idee & Shinichiro Iwata & Teruyuki Taguchi, 2008. "Auction Price Formation with Costly Occupants: Evidence Using Data from the Osaka District Court," CIRJE F-Series CIRJE-F-593, CIRJE, Faculty of Economics, University of Tokyo.
    3. Takako Idee & Shinichiro Iwata & Teruyuki Taguchi, 2011. "Auction Price Formation with Costly Occupants: Evidence Using Data from the Osaka District Court," The Journal of Real Estate Finance and Economics, Springer, vol. 42(1), pages 84-98, January.
    4. Seow Eng Ong, 2006. "Price Discovery in Real Estate Auctions: The Story of Unsuccessful Attempts," Journal of Real Estate Research, American Real Estate Society, vol. 28(1), pages 39-60.
    5. Silke Hüttel & Simon Jetzinger & Martin Odening, 2014. "Forced Sales and Farmland Prices," Land Economics, University of Wisconsin Press, vol. 90(3), pages 395-410.
    6. Du, Hongyan & Ma, Yongkai & An, Yunbi, 2011. "The impact of land policy on the relation between housing and land prices: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 19-27, February.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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