Determinants of auction success and auction price premium

Abstract

The property auction market is an effective sale method for disposing property. Nevertheless, little research has been conducted on property auction market in Malaysia, especially on what determines auction success and price premium. This study analyses the auction market for residential landed property, factors influencing auction outcomes and determinants of auction success sales and auction premium. Factors influencing auction outcomes were identified based on previous related studies and interviews with parties involved in the auction market. Using data of residential landed property in Johor Bahru auctioned from 2012Q1 to 2014Q2, the Logistic Regression and the Ordinary Least Square Regression were employed to identify the factors of auction success sales and auction premium. Results show a high percentage (82%) of properties sold with average premium of 36.23%, above the initial reserve price with a maximum premium of 132.5% and 103.03% for semi-detached and low cost houses respectively. Probabilities of sale and auction premium level are higher if the property is freehold, have lower reserve price and with lower number of auction attempts. Land area is significant and negatively associated with auction success sale but positive towards premium. Financial lenders should auction two storey low cost and semi-detached houses as they tend to produce high premium level. Investors should buy auctioned low cost houses at Taman Mount Austin and semi-detached at Taman Bukit Rinting as these locations produce the highest average auction premium whereas thorough consideration is needed for buyers to buy auctioned terrace houses at lowest premium location, that is in Taman Sri Austin.