Seow Eng Ong
Published: 2006
Total Pages: 22
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Little is known of the effects of the auction mechanism in relation to post-auction market sale. This empirical study of 966 unsuccessful auction observations over a period of almost five years is an initial attempt to provide insights on post auction effects. Approximately half of these properties were eventually sold via private negotiations. The post-auction privately negotiated sale prices are on average higher than the opening and last bids when at least one bid is received at the auction. However, properties that received no bids at the auction were transacted on average, at a discount to the opening bids. The probability of a subsequent post-auction transaction is significantly higher for apartments and terrace houses and when auction turnout is high; and lower in the absence of any bid and in some years. The price to opening bid differential increases with the number of increments at the auction, but is lower for more atypical properties and decreases with time-to-subsequent sale. The results lend support to the hypothesis that the auction mechanism provides a positive price discovery effect, ostensibly from publicity and exposure at the auctions. Interestingly, the probability of subsequent sale is also decreasing (albeit insignificantly) in the capital loss experienced by owners, lending some support to the loss aversion theory. However, the attenuation in opening bids is observed for all properties, regardless of whether they are put up for sale by owners or by financial institutions.