This paper aims to study aggressive bidding strategies in real estate auctions – a structural equation modelling (SEM) approach.
The authors use two data sets to study aggressive bidding strategies. First, the results from a survey with 1,803 participants examining real estate auctions are used to identify bidding strategies and related motivations. Second, the authors apply SEM by using data from 1,078 exclusive auction journals from real estate sales in Norway to study both the direct and indirect price effects of the bidding strategies.
The authors define four aggressive bidding strategies: high opening bid, high bid increase (jump bids), short acceptance deadline and short response time. The authors find that all four strategies yield a higher sales price. Bidders can actively influence the behaviour of the other participants and cool the potential auction fever, thus reducing the final price premium.
This paper gives households, investors and policymakers a better understanding of how bidding strategies affect real estate auctions and the final price.
