Getting it right or getting it cursed: Auction prices in a residential real estate bubble

Abstract

This is the first study to test for a winner's curse in a bubble market. Our hand‐collected sample comprises the sequence of bids and the experience of the winning bidder at Irish residential real estate auctions, prior to the collapse of the bubble. Portfolios of practitioner‐ and hedonic pricing model‐selected self‐similar properties provide benchmark property price estimates. We show neither real estate investors nor owner occupiers shade auction bids to avoid the winner's curse and both raise bids in line with competition. Winning investor bidders pay more for properties, ride the wave of a property bubble, and potentially exacerbate it.