Abstract
The aim of this paper is to investigate whether different market regimes affect bidding behavior in housing auctions. Taking advantage of special circumstances in the Norwegian housing market in 2015 and 2016, we conduct a survey involving 1803 respondents in three of Norway’s largest cities, Oslo, Stavanger and Trondheim. In the Norwegian housing market 90 percent of dwellings are sold after an English auction. Norway has a rather homogeneous market, with the same laws, traditions, interest rates and approximately the same tax rates applying across the country. However, in December 2016, the two-year nominal house price increase was 34.8 percent in Oslo and 14.8 percent in Trondheim, whereas prices fell 7.8 percent over the same period in Stavanger. We find that households in booming housing markets appear to believe that a more aggressive bidding strategy is advisable to obtain a dwelling at the lowest possible price, compared with households in bust markets. Evidence suggesting that bidders in booming markets are less likely to decide on a maximum price limit before an auction commences substantiates this finding. In addition, we find that bidders in booming markets have a weaker reliance on real estate agents.
Highlights
The aim of this paper is to investigate whether the prevailing housing market regime affects households’ behavior in English auctions, which is the traditional way of selling used residential dwellings in Norway
In the Norwegian housing market, 90 percent of residential dwellings are sold after an English auction, where the participants sequentially raise their offers until a single bidder is remaining, paying the amount of the highest bid
We argue that because the market regulations, traditions, interest rates and tax rates are uniform across cities, there is an appropriate foundation for the comparison of the market regimes
Summary
The aim of this paper is to investigate whether the prevailing housing market regime affects households’ behavior in English auctions, which is the traditional way of selling used residential dwellings in Norway. The auction and the preceding marketing are organized by a real estate agent, hired by the seller, who takes on the role of both independent third party and auctioneer. Dwelling advertisements are promoted through channels such as classified advertising websites, realtor websites and newspapers They typically contain pictures, house characteristics, neighborhood information, specific dates for an open house and the asking price. Potential bidders indicate their interest by signing a list, which means that the real estate agent will inform them about bids during the auction. The auction is conducted via e-mail or text messages, with the agent as the intermediary between the bidders and the seller
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