Auction process often results in buyers overbidding for properties, ESRI study finds

"It found that the buying process in Ireland is marked by auctions that induce overbidding. There is also widespread misunderstanding among homebuyers of rights and responsibilities, and increasing delays after sales are agreed, according to the ESRI research. The study, which was funded by the Competition and Consumer Protection Commission (CCPC), draws on a nationally representative survey of 800 adults. The ESRI's Behavioural Research Unit carried out an auction experiment to test how bidding behaviour changes when people face different bidding systems."

"With open auctions organised by estate agents and online, the study found bids from those taking part were pushed higher than they would be if a sealed-bid auction process was used. Participants in open auctions were more likely to exceed their original budget and to bid higher than their view of what the property was worth, according to Dr Deirdre Robertson of the ESRI, the lead academic carrying out the study."

"People keep bidding even when they exceed their budget for fear of missing out, known as "loss aversion". "Bidding systems may induce loss aversion because an individual is ­repeatedly losing their place as the top bidder when someone else places a bid," the study said. Competitive environments drive individuals to try to beat others, with people feeling losses more than gains, the ESRI said. This leads them to overbid."

"Big gaps were found in people's knowledge of rights and responsibilities. More than two-thirds know it is illegal for a seller to accept multiple deposits for the same property. But only one in five know that agents can legally continue to market a property after it goes sale agreed. And most people do not know that a buyer can pull out of a sale without penalty before contracts are signed."

Buying process in Ireland is marked by auctions that induce overbidding. Open auctions organised by estate agents and online push bids higher than sealed-bid auctions, causing participants to exceed their original budgets and to bid above their assessment of a property's value. Competitive and repetitive bidding environments create loss aversion, as individuals repeatedly lose the top-bid position and keep bidding to avoid missing out. Large gaps exist in buyer knowledge of rights and responsibilities: many know sellers cannot accept multiple deposits, but few know agents may continue marketing sale-agreed properties or that buyers can withdraw before contracts without penalty. Delays and stressful hurdles are increasing.

Read at Irish Independent