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The Role of Auctions and Negotiation in Housing Prices

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  • Genesove, David
  • Hansen, James

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.

Suggested Citation

  • Genesove, David & Hansen, James, 2016. "The Role of Auctions and Negotiation in Housing Prices," CEPR Discussion Papers 11392, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11392
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    References listed on IDEAS

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    1. Carlos Alós-Ferrer & Johannes Buckenmaier & Georg Kirchsteiger, 2022. "Do traders learn to select efficient market institutions?," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 203-228, February.

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    More about this item

    Keywords

    Auctions; Bargaining; Housing prices;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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