eThesis - Kauppakorkeakoulun sähköiset gradut

PURPOSE OF THE STUDY:

In Autumn 2007 a new auction based pricing methodology (tarjouskauppa) was introduced to the Finnish residential real estate market. Ever since, the auction pricing has gained popularity. However, auction transactions have not yet been studied in Finnish academia from the point of view of price formation and time on market. This study fills this gap by examining whether the auction transactions over or underperform traditional transactions in terms of a debt free transaction price and time on market.

DATA:

The data is combined from two different sources covering transactions from August 2011 to January 2014. The transaction data is hand collected from an online transaction database while the dwelling advertisement data is obtained from "Oikotie.fi" the leading online advertisement platform in Finland. The study is limited on transactions conducted in Helsinki and focuses on condominiums leaving detached houses outside the scope. In total 7,172 transactions are analyzed of which 1,354 are traded via auction. The data analysis is done using regression analysis and its applications.

RESULTS:

The results suggest that on average auction transactions trade at 1.5 percentage point discount in contrast with negotiated treaties. Assuming an average 200,000 euro transaction value the economic benefit for the buyer is around 3,000 euro per transaction. However, steep differences exist between the subareas of the city as transactions in "Southern Helsinki" generate above 4% discounts whereas transactions in Northern Helsinki receive corresponding premiums implying the economic magnitude of more than 8,000 euro per transaction for either the seller or buyer depending on the subarea. In contrast with common view, auctions also on average underperform negotiated sales in terms of time on market ("TOM"). The average difference in TOM is 3-5 days.

Overall, the thesis finds evidence on price and TOM discrepancy between the two alternative transaction methods. On average, the results indicate a little support for the usage of auction pricing from the sellers' perspective.