The Puzzle of the Discount Price for Foreclosed Houses: Does the Factor of Competition Explain More Discounts?

Abstract

Using the data of the foreclosed houses and the brokerage houses in Taipei\r\nfrom 2001-2002, we try to answer “Does the factor of competition explain more\r\nprice discount?” Three main empirical results are found: (1) The average price for\r\nthe foreclosed houses in the biding market is lower 17.20% than that for the\r\nbrokerage houses in the searching and bargaining market, controlling other things\r\nbeing equal. We propose the market mechanism such as the foreclosed-housing\r\nrisk of the buyer exposure, and the participant number of biding can explains\r\nmore for the deep-discount price. (2) The price discount is 15.99% if one bidder\r\ninvolves. Moreover, the more participant number of biding is, the lower price\r\ndiscount between auction market and search market is. This implies that full\r\ninformation disclosure can increase the competition and reduce the price discount\r\nof foreclosed houses in the court-oriented auction market.