This paper discusses the decision-making behavior regarding the choice of housing market mechanism. Since the real estate auction market has been one of the main market mechanisms used in home purchases, the performance of real estate auctions is a very important issue. This paper reviews the price premium or discount of real estate auctions by correcting for the self-selectivity bias in view of the homebuyer's ability to finance the purchase and his investment experience. The empirical results for Taipei city in 2004 during a boom market shows that the price discount rate in the auction market was about 27% without taking into consideration the self-selection bias. However, the availability of an auction as an alternative has resulted in the high search costs faced by buyers attending auctions. In addition, after accounting for the endogenous nature of this choice and controlling for property and buyer characteristics, the prices of properties sold at auctions are not lower than those of comparable properties sold in a search market. Therefore, it is questionable to state that the performance of real estate auctions during a boom market is always inferior to that of negotiated sales in Taiwan.
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