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Bidders’ reactions on valuation signals – anempirical study of commercial propertyauctions in the UK
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management.
2013 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Auctions have always been an important transaction tool for objects that requires an

individual pricing, such as properties, antiquities, art, cars, jewellery and so on. However, few

commercial property markets are employing this market making function with the

consequence of more illiquid market segments. Previous research has focused on whether or

not providing information signals about the object is beneficial to the seller or not from a

theoretical point of view. Therefore, this report aims at empirically assess how provided

valuation information affects the sale-outcome of commercial real estates.

This study examines the quality of the sellers’ and auctioneer’s announced valuation signal to

the bidders by utilizing conventional econometric hedonic models, where the dependent

variables are factors determining the success of the auction and based on a dataset including

guide-prices and an investment grade for each object. The result is that the sale probability

increases and price settles closer to the ex-ante valuation for objects with a low signalled risk

(low guide price yield) and a high grade (A). There is a strong correlation between guide price

yields and initial transaction yields, i.e. bidders’ risk/reward assessment follows that of which

is signalled from the sell side. Furthermore, the transaction yields are more inelastic than the

guide price yields, i.e. this happens at less than a 1:1 proportional rate increase. This indicates

that guide prices not optimally reflect the bidders’ valuation. Furthermore, the bidders do take

external factors into account when assessing whether or not to make a bid. In general bidders

tend to prefer low yielding buildings with a high investment grade.

Place, publisher, year, edition, pages
Keyword [en]
Auction, Yield, Commercial, Real Estate, Property, Guide Price, Valuation, Signalling
National Category
Engineering and Technology
URN: urn:nbn:se:kth:diva-131471OAI: diva2:656559
Subject / course
Building and Real Estate Economics
Educational program
Bachelor of Science in Engineering - Constructional Engineering and Economics
Available from: 2013-10-16 Created: 2013-10-16 Last updated: 2013-10-16Bibliographically approved

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