On the Estimation of Bid Distributions in Real Estate Markets

The price at which a real property is sold depends on the initial asking price, the distribution of potential bids for the property by interested buyers, the quality and intensity of the advertising message, and the manner in which the initial asking price is revised if the property is not immediately sold.

The model of real estate transactions developed in this paper shows that—contrary perhaps to current views—there is no simple relationship between selling prices and the distribution of potential bids. However, under certain conditions, estimates of the distribution of potential bids for any property can be obtained on the basis of a sample of past transactions, recording the asking price, selling price, and the physical characteristics of the properties sold.