A MODEL OF NEGOTIATED SALES APPLIED TO REAL-ESTATE AUCTIONS

Recently, real estate auctions have grown substantially in depressed m arkets. This article develops a framework to compare the performance o f auctions to that of negotiated sales. First, the article solves a se arch model that incorporates unforeseen shocks and compares how prices respond in the short-run and long-run. Next, auctions are considered. Auctions are shown to obtain discounts because a quick sale results i n a poorer ''match'' between house and buyer, on average, than could b e obtained by waiting longer for a buyer. The model predicts that auct ion discounts should be larger in down markets with high vacancies, an d in less dense markets. (C) 1995 Academic Press, Inc.