Real estate auctions

 Peter Cramton points me to this article in the Orange County Register, about a real estate auction with a soft close, that ran for several months.

How ‘soft’ auction added $33million to price for Orange County County icon By Jonathan Lansner

"The federal government’s exit from the eye-catching Chet Holifield Federal Building – better known as the “Ziggurat” – began June 5. The initial auction deadline for the building plus 89 acres in Laguna Niguel was July 31, but it came with a big “but” in the rules.

"You see, this auction run by the General Services Administration has a “soft close” – if the high price is topped in a 24-hour period, the auction is extended for another 24 hours.

"And on July 31 – and for every business day through Friday, Oct. 4 – that extra bidding threshold was met. 

"Consider the math of this curious auction technique: On July 31, the first deadline, the Ziggurat price tag was $136.8 million. The 46 added days of bidding increased that to $169.6 million as of Friday.

...

"Cramton wonders why auctions of any style aren’t more widely used to sell all sorts of residential housing nationwide. He sees them as fast and efficient ways to maximize pricing.

"Yet, auctions are typically used only to sell US homes with financially distressed ownership.

"“We don’t need thousands of real estate agents,” the professor says."

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He further says: "There are 1.6 million real estate agents in the US and 434,661 in California (including brokers)."

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The WSJ has this story on real estate auctions:

"The Wealthy Are Overpricing Their Homes. Auctions Show Just How Much. Desperate to sell, more rich homeowners are turning to the auction market—but the results aren’t always what they bargained for.  By Katherine Clarke  and E.B. Solomont, Oct. 30, 2024 

"More closely associated with pricey art or collectibles, auctions are on the rise for luxury real estate, with auction houses reporting a dramatic spike in the number of high-net-worth sellers seeking their services since 2020. Amid a slowdown in luxury home sales, auction companies are pitching homeowners on their ability to market unique properties to a range of deep-pocketed buyers beyond local markets and to sell them within a precise time frame.

...

"Auctions tend to attract the real-estate world’s white elephants—properties that may be quirky, highly-personalized or ultraluxury, resort-style homes in neighborhoods where that type of housing is atypical.

...

"Whether there’s a reserve price or not, Concierge takes a 12% to 15% buyer’s premium as a commission, plus there are agent fees. It markets the property heavily before the auction, and tries to generate early offers by offering prospective buyers a “starting bid incentive,” or 50% discount on the buyer’s premium if they submit a winning bid before the start of the auction."

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Peter C. emails the following comment (since comments on the blog are closed):

"Real estate norms vary by country. In Norway and Australia, auctions are the norm. In the US, transactions are brokered, sometimes aided by an auction process. In all countries, residential and commercial real estate transactions would be improved with a better market design that emphasizes transparency and efficiency as goals in solving real estate's economic problems. Market design research on real estate is needed."

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*I enjoyed comments when I allowed them, but closed them because each morning I had to delete spam comments advertising bogus kidney purchases and sales...:(

Sniping in soft-close auctions (right before the time that triggers an extension)

From Marketing Letters:

Marketing Letters

pp 1–13| Cite as

Sniping in soft-close online auctions: empirical evidence from overstock

• Authors
• Authors and affiliations

• Wen Cao, 
• Qinyang Sha, 
• Zhiyong Yao, 
• Dingwei Gu, 
• Xiang Shao

1. 1.
2. 2.
3. 3.

Abstract: The existing studies suggest that sniping is an equilibrium strategy in hard-close online auctions, but not in soft-close ones. In this paper, we use a unique, large-scale data set from soft-close Overstock and hard-close eBay to document sniping phenomena under the two different closing rules. Estimation results show that sniping is prominent on both websites, but they are prevalent at different times. On eBay, sniping occurs right before the auction close, while on Overstock sniping happens predominantly in a short window of time before the triggering period, during which any additional high bid automatically extends the online auction. Furthermore, the revenue effect of sniping is significantly stronger on Overstock than on eBay.

Last minute bidding on the New York Stock Exchange

The WSJ has the story (the url is better than the headline:
https://www.wsj.com/articles/at-closing-time-the-stock-market-heats-up-like-a-bar-at-last-call-1521038300)

What’s the Biggest Trade on the New York Stock Exchange? The Last One
"The NYSE operates between 9:30 a.m. and 4 p.m., but much of the action has moved to the final moments, thanks to index funds and others that flock to the day’s closing auction"

"Last year, 26% of all trading activity on the NYSE’s flagship exchange took place in the last trade of the day, up from 17% in 2012, exchange data shows. Last year, trades at the close accounted for more than 8% of trading volume in S&P 500 stocks, nearly four times what it was in 2004, according to Credit Suisse .

"While individual investors may follow the market through the day, especially in the past turbulent weeks, it is likely they own funds that track major stock indexes like the S&P 500 whose values depend on prices determined in the closing auction.

"In this auction, traders electronically send transaction orders to the NYSE, home to more than 2,000 companies that include such blue-chip names as Boeing Co. , Walt Disney Co. and Exxon Mobil Corp. The exchange’s computers match the millions of buy and sell orders, with human traders on the NYSE floor sometimes stepping in to help.

"At least $10 billion worth of shares are traded in the NYSE’s closing auction on an average day, with a final tally of stock prices typically listed by 4:05 p.m.

The “close,” as traders call it, has grown in importance as investors pour into index-mutual funds and other vehicles that passively track various stock-market indexes, including exchange-traded funds, or ETFs. "

Is sniping bad for eBay? New paper by Bakus, Blak, Masterov and Tadelis

Is Sniping A Problem For Online Auction Markets? by Matt Backus, Tom Blak,  Dimitriy V. Masterov, and Steve Tadelis

Abstract: "A common complaint about online auctions for consumer goods is the presence of “snipers,” who place bids in the final seconds of sequential ascending auctions with predetermined ending times. Roth and Ockenfels (2002) and Bajari and Hortacsu (2003) conjecture that snipers are best-responding to the existence of “incremental” bidders that bid up to their valuation only as they are outbid. Snipers aim to catch these incremental bidders at a price below their reserve, with no time to respond.  As a consequence, these incremental bidders may experience regret when they are outbid at the last moment at a price below their reservation value. We measure the effect of this experience on a new buyer’s propensity to participate in future auctions. We also consider an alternative explanation, rooted in the behavioral literature on the endowment effect. Bidders may gradually develop an attachment to the object while they are the high bidder, implying that the regret should increase with time spent in the lead. We show that the two narratives are econometrically separable,
and estimate them using a carefully selected subset of auctions from eBay.com."

They find that first-time bidders who are outbid in the final seconds of an auction are less likely to return to eBay: here's a graph of the probability of not returning, as a function of how close to the end of th auction the first time bidder was successfully sniped...

They conclude: "As a result, sniping has a negative impact on the growth rate of the auction platform."

Sniping on eBay, revisited

Is Sniping A Problem For Online Auction Markets?

Matthew Backus, Tom Blake, Dimitriy V. Masterov, Steven Tadelis

NBER Working Paper No. 20942
Issued in February 2015
NBER Program(s):   IO 

A common complaint about online auctions for consumer goods is the presence of "snipers," who place bids in the final seconds of sequential ascending auctions with predetermined ending times. The literature conjectures that snipers are best-responding to the existence of "incremental" bidders that bid up to their valuation only as they are outbid. Snipers aim to catch these incremental bidders at a price below their reserve, with no time to respond. As a consequence, these incremental bidders may experience regret when they are outbid at the last moment at a price below their reservation value. We measure the effect of this experience on a new buyer's propensity to participate in future auctions. We show the effect to be causal using a carefully selected subset of auctions from eBay.com and instrumental variables estimation strategy. Bidders respond to sniping quite strongly and are between 4 and 18 percent less likely to return to the platform.

Why it's hard to get hot restaurant reservations or concert tickets (and why concierges sometimes can)

It turns out you need professional gear to get some reservations: the New Statesman has a report from the front.

The Bot Wars: why you can never buy concert tickets online

Enterprising programmers are creating bots that can reserve, and in some cases buy, everything from restaurant tables to eBay goods before humans can even get a look in. Where will the bot wars end?

"Just as high frequency trading, via automated software, took over the financial markets in the early 2000s, the use of bots is a technique that is increasingly coming to dominate online sales of all stripes."
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Some of my earlier posts on this subject here,  here and here  focused on concert tickets and professional re-sellers (scalpers) who sometimes skirt the law.


HT: Dean Jens

Budish, Cramton and Shim on The High-Frequency Trading Arms Race

Presently most stock markets, such as the New York Stock Exchange, and most futures markets, such as the Chicago Mercantile Exchange, use a market design called the continuous limit order book."Continuous" means that whoever accepts a bid or ask first gets the trade. This can create a race that doesn’t have an economic purpose. (Billions have been spent on optical fiber cables and microwave channels to shave milliseconds off how quickly traders can compare prices in NY and Chicago.) It can also make the market thinner in costly ways. (Liquidity providers have to quote wider bid-ask spreads to protect themselves against getting ‘sniped’ if there is a news event and they don’t adjust their quotes fast enough.)

An exciting market design paper documents this and suggests a solution (run a batch market every second, so that traders would have to compete on price rather than time):
The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response
by Eric Budish, Peter Cramton, and John Shim

Abstract: We propose frequent batch auctions – uniform-price double auctions conducted at frequent but discrete time intervals, e.g., every 1 second – as a market design response to the high-frequency trading arms race. Our argument has four parts. First, we use millisecond-level direct-feed data from exchanges to show that, under the continuous limit order book market design that is currently predominant, market correlations that function properly at human-scale time horizons completely break down at high frequency time horizons. Second, we show that this correlation breakdown creates purely technical arbitrage opportunities, which in turn creates an arms race to exploit such opportunities. Third, we develop a simple theory model motivated by these empirical facts. The model shows that the arms race is not only per se wasteful, but also leads to wider spreads and thinner markets for fundamental investors. Last, we use the model to show that batching eliminates the arms race, both because it reduces the value of tiny speed advantages and because it transforms competition on speed into competition on price. Consequently, frequent batch auctions lead to narrower spreads, deeper markets, and increased social welfare.
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Figure 1.1 of the paper beautifully illustrates why speed pays: it only takes milliseconds for a price movement on index futures in Chicago to be matched by a corresponding price change on the exchange-traded index fund in NY. Whoever sees that discrepancy first can earn the full arbitrage profits. (In a batch market every second, traders would have to compete for these...)

Tim Harford has a nice summary of the paper here.
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The NY Times covered a different kind of early information (seconds not milliseconds, involving survey results, not prices) in this pair of before and after stories: Thomson Reuters to Suspend Early Peeks at Key Index, Fair Play Measured in Slivers of a Second

From the second story:
"On Friday morning, Thomson Reuters released the latest University of Michigan Consumer Sentiment Index, as it does twice a month. But this time was different. As a result of a settlement Thomson Reuters reached this week with New York’s attorney general, Eric T. Schneiderman, a select group of its customers didn’t get the two-second advance release they’d been buying.
...
"The difference was arresting. On Friday, just 500 shares of a leading Standard & Poor’s 500 exchange-traded fund traded during the first 10 milliseconds of the two-second window before the release of the University of Michigan data to Thomson Reuters’ regular clients, according to the market research firm Nanex. A year ago, on July 13, 2012, 200,000 shares traded during that 10-millisecond period, Nanex said."
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I shared a draft of this post with Eric Budish, who replied as follows:

"If you wanted to hook this paper into your own work, here are some potential connections (we chatted about these connections last time I was in Stanford):
- Serial vs. batch processing: we are criticizing continuous limit order books, which process messages one-at-a-time in serial and hence induce speed races, and proposing a batch auction in its place. This reminds me of your 1997 JPE paper on serial vs. batch processing …
- Congestion: the speed race creates congestion for the exchange’s computers, which leads to a backlog in processing messages, which leads to traders being confused about the state of their orders, which creates uncertainty and occasionally bigger problems (backlog is most severe at times of especially high market activity, when reliance on low-latency information is also at its highest). We talk about this a bit in Section 8 of the paper
- Sniping: our empirical work and theory model highlight that an important cost of liquidity provision under the continuous limit order book is that liquidity providers are constantly getting “sniped” – when there is an arbitrage opportunity, such as the one you can see in Figure 1.1 of the paper, some poor liquidity provider is on the other side of that arbitrage opportunity and is losing money … he ultimately passes this cost on to fundamental investors via a wider bid-ask spread
- Thickness: continuous time is the ultimate thin market, in most dt’s there is no activity whatsoever …

Not sure that any of this is worth mentioning, but it’s fun to see all of these themes from your work coming up in so different a context."

Timing of theater reviews

I have a longstanding interest in the timing of transactions (such as unraveling, when transactions become early, or sniping, when they become late, or congestion, when they take a long time, or deadlines). So I read with interest Catherine Rampell's piece on Theater Review Economics, about the timing of theater reviews. (Apparently she's a theater reviewer as well as an economics correspondent.  I guess I won't tell you what I do when not reviewing economics...)

It turns out that when she interviews show producers, one of the answers she gets concerns unraveling (although she discounts this possibility...).


"...as some of you may know, we have an odd little tradition in theater criticism, in that we (almost) never publish a review until after a production’s official opening night. I’ve long wondered about whether it makes good business sense for productions to enforce this embargo.

"While reviews run after opening night, they’re rarely based on a viewing of the actual opening night performance; the curtain generally falls much too late for critics to meet their deadlines for the next day’s paper. Instead, critics usually are invited to attend one of the preview performances after the show has already been “set” or “frozen” — that is, after the director and rest of the creative team have decided not to make any more major changes.

"The time between freezing and opening varies, but it’s generally somewhere from a couple of days to a week.

"I’ve been especially curious about review embargoes lately because summer theater productions usually have very short runs, and should theoretically want reviews published as early as possible — well before the show closes, anyway. Most of the shows I review during the rest of the year have pretty short runs, too, including some productions that last less than two weeks.

"I understand the desire to turn opening night into a big event to magnify press attention, as is done with the openings of big, star-studded movies and their sumptuous red carpets.

"But for a vast majority of theatrical events, little attention is paid to the opening-night parties and such. Even when publications do run photos of the pomp and circumstance of a play’s opening night — if Scarlett Johansson is starring in the show, say — that coverage usually appears in news articles and Us Weekly spreads, not critical reviews.

"Eager for the perspective of those who have money on the line, I called two longtime producers for their thoughts.

"The first was Roger Berlind, a phenomenally successful theater producer who has won 18 Tonys and mounted 80 Broadway shows since 1976, four of which are still running. (Another, “Annie,” opens in November.)

"He noted that when he began producing shows, critics attended on opening night and wrote a review for the late edition of the next day’s paper, since deadlines were often later then. He didn’t sound all too thrilled that the policy had changed.

"Today, he said, producers and press reps encourage the big critics to come a day or two before opening night, even though attending earlier is an option, because the show continues to improve up through the opening night even after the show is set. He said he worried that if critics were able to publish as soon as they saw the show, more of them would rush to see the production as early as possible because “critics are extremely competitive.” That rush would place pressure on the cast and creative team to polish the performances earlier. “Then you’d have to back up the entire process starting with the first day of rehearsal, and I don’t think that would be productive,” he said. “It’s expensive to go through the rehearsal process already.”
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I wonder whether the embargo on theater reviews might serve some of the same function that embargoes on news releases do...

Sniping on eBay, in Australia (radio interview)

Apparently eBay users in Australia are concerned about sniping (last minute bidding). I was interviewed for a radio report on the subject by Hagar Cohen, which you can hear here (in Australian): Snipe bidding: the dark side of online shopping.

My papers on the subject, with Axel Ockenfels and Dan Ariely are here.

Sniping in auctions with substitutes

On an auction site like eBay, many copies of the same good may be on offer for different auctions. A new sniping site, goSnipe, allows bidders to specify a group of auctions on which to submit last minute bids, one at a time, but to stop when the desired purchase is made.


Here's some research on bid sniping, and the underlying game theory.