Jump bids in real estate auctions

Abstract

The lion’s share of Norwegian homes changes hands through closely monitored and regulated auctions. Some housing market experts advocate the supremacy of a jump bid, a significant bid increase to discourage fellow bidders, and thereby acquire the dwelling at a lower price compared to bidding strategy with moderate bid increases. We find no evidence for the efficacy of this jump bid strategy. Jump bidders, if successful, pay a positive jump premium. This also applies to the case where the jump is not the final bid and the jump bidder win at a later stage. In this case, the jump bid premium is around 1 to 2%. However, a jump bid is a credible signal of “serious intentions”. Jump bidders tend to win auction more often even in cases, where the jump bid is matched, and the auction continues.