A seminar by Professor David Solomon from Boston College
Title: How Perception Affects House Prices: Evidence from Failed Auctions
Abstract: In the Australian real estate market, about a third of properties are sold at auction. Properties that fail auctions sell later for a 1.3% discount. Consistent with a causal channel, the effect holds with property-level fixed effects and when auction failure is instrumented by adverse weather (rain). Prices cluster just below round numbers, and the discount fades over time, inconsistent with our effects reflecting unobserved property characteristics. The evidence suggests that there are behavioral
factors affecting potential buyers’ willingness to pay.
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