Bidding Conventions and the Degree of Overpricing in the Market for Houses

Abstract

How do buyers decide whether a property is overpriced? Do they base their judgement on the simple difference between the asking price and expected selling price? Or do they take into account local bidding conventions—the typical asking–selling price spread in the neighbourhood? This paper explores the implications of bidding conventions for the definition and measurement of the degree of overpricing and the effect this has on a survival model of time on the market. The paper also considers the impact of uncertainty and employs fractional polynomial regression to explore whether spatio-temporal variations in attribute prices affect market perceptions of overpricing.

Expectation Adjustment in the Housing Market: Insights from the Scottish Auction System

“…Choosing a fixed price reduces buyer uncertainty. Second, the seller may consider that there is a low probability of the auction attracting many bidders due to property characteristics, location and/or general market conditions (Pryce, 2011). This is consistent with Mayer (1995).…”

“…The sale probability can also be affected by the length of time the house has been on the market, the distribution of offers and the seller's reservation price (Haurin, 1988;Pryce & Gibb, 2006;Yavas & Yang, 1995;Zuehlke, 1987). Pryce (2011) also finds that the degree of overpricing is positively correlated with market duration. This paper examines the consumers' speculative behaviour, focusing on the demand side of the housing market and its selling mechanisms.…”

“…Unlike the open outcry auction, the date of a sealed-bid auction in Scotland is not pre-set and is only set when the seller's solicitor receives two or more 'notes of interest' (Pryce & Gibb, 2006;Pryce, 2011). The bids are revealed to the seller after the 'closing date' for offers has elapsed.…”

“…g, g and h are the coefficients of asking price, number of auction participants and TOM, respectively. Even though our approach has a similar starting point to Pryce (2011), there are several differences. Most importantly, the percentage difference is examined between the asking price and the 'expected selling price' that is a hedonic price estimate.…”

Housing Prices and Multiple Employment Nodes: Is the Relationship Nonmonotonic?

“…Glasgow is a particularly useful test-bed for such research given that it is has become a well-established location for house price and urban structure research (see, for example, Pryce, 2011;Pryce & Gibb, 2006).…”