Determinants of the House Bidding Process: Approximating Consumers’ Surplus
||Thanos, Sotirios; White, Michael
||Determinants of the House Bidding Process: Approximating Consumers’ Surplus
||16th Annual European Real Estate Society Conference in Stockholm, Sweden
||In housing transactions, the selling price is often different from the asking price, being either higher or lower. In setting an asking price, sellers may be motivated by their personal as well as economic circumstances. Thus if they sell because of a job related move they may wish to sell quickly and therefore set a lower asking price to attract interest in the property. Alternatively if they are prepared to wait on the assumption that they will receive a higher offer, they may set a higher asking price to deter lower offers. However, the process of buying and selling itself may have an impact on bids offered. For example if sealed bids are used and there is no information on bids made by competing purchasers, individual purchasers may offer relatively high bids if they want to be certain they will secure a property.. Assuming that the asking price in this case is a proxy of the market clearing price, the difference between the winning bid and the asking price will approximate the maximum consumer surplus (CS) over the market price for the specific house (i.e. the CS for the highest bidder if the selling price was equal to the asking price). This difference between highest bid and the asking price, which can be viewed as either profit (for the seller) or CS, is the main focus of our analysis. This paper examines approximately 75,000 transactions in the city of Aberdeen, Scotland, to determine bidding behaviour. Specifically it examines factors affecting bids above and below the asking price using information provided on both asking and selling prices and property characteristics. It also examines the case where asking and selling prices are equal and identifies the influence of different factors in the bidding process.
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