The Stench of Failure: How Perception Affects House Prices / Kristle Cortés, Mandeep Singh, David H. Solomon, Philip Strahan.

Format:

Book

Author/Creator:

Cortés, Kristle.

Contributor:

National Bureau of Economic Research.

Singh, Mandeep.

Solomon, David H.

Strahan, Philip.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30760.

NBER working paper series no. w30760

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2022.

Summary:

In Australian real estate markets, about a third of properties are sold at auction. We show that properties that fail auctions sell later for a 2.6% discount. This effect increases for properties failing multiple auctions and when no bids are made. Consistent with a causal channel, the effect holds when auction failure is instrumented by the tendency of owners to anchor on nearby better properties (and thus set reserve prices too high). Prices cluster just below salient round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics. We test for several mechanisms and conclude that most of the pricing discounts reflect stigma, which reduces potential buyers' willingness to pay.

Notes:

Print version record

December 2022.