Do Brokers Beat Auctions in the Sale of Foreclosed Real Estate Property? RCT Evidence from Sweden

Last registered on June 17, 2022

Pre-Trial

Trial Information

General Information

Title
Do Brokers Beat Auctions in the Sale of Foreclosed Real Estate Property? RCT Evidence from Sweden
RCT ID
AEARCTR-0004883
Initial registration date
November 20, 2019

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
November 22, 2019, 11:00 AM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
June 17, 2022, 8:28 AM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Region

Primary Investigator

Affiliation
Uppsala University

Other Primary Investigator(s)

PI Affiliation
The Swedish Enforcement Authority
PI Affiliation
Department of Statistics

Additional Trial Information

Status
In development
Start date
2019-12-01
End date
2023-06-30
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
Extant research demonstrates that there is a foreclosure discount for real estates sold during foreclosure compared to similar real estates sold voluntarily at arms-length on the open market. In Sweden this involves a comparison of compulsory sale at a public auction administered by the Swedish Enforcement Authority (SEA;,swe. Kronofogden) with voluntary brokered sale. However, the impact of brokered sale during foreclosure has not been investigated previously. This is possible in the Swedish setting, since SEA is legally obliged to choose between these two different sale modes in each compulsory sale case.

Even though both modes are compulsory from the perspective of the foreclosed homeowner, the conditions for the sale are quite different. Auction sale is much formalized: the sale is advertised under SEA flag, there are limited opportunities for intending buyers to examine the property, and the auction takes place physically at SEA in an English-style auction, in most cases without a meaningful reserve price. By contrast, brokered sale mimics an open-market sale since the broker handles all aspects of the sale up until the signing of the contract. In both instances, the market value for each real estate is professionally appreciated by SEA.

In this study, sale mode – auction or broker – is randomized by SEA for real estates that fulfil the legal criteria for brokered sale. Brokered sale is the treatment variable. The main outcome is sale price. This RCT design allows us to answer the following research questions: How do sale prices vary during compulsory sale of real estates on public auction versus brokered sale? How does market value impact sale price for these two sale modes? What are the implications of brokered compulsory sale for the foreclosure discount? The design also allow us to examine if failure to sale is different between the two sale modes.
External Link(s)

Registration Citation

Citation
Dahlberg, Matz, Mikael Lundholm and Mattias Nordin. 2022. "Do Brokers Beat Auctions in the Sale of Foreclosed Real Estate Property? RCT Evidence from Sweden." AEA RCT Registry. June 17. https://doi.org/10.1257/rct.4883-1.2
Experimental Details

Interventions

Intervention(s)
Foreclosed real estate properties that will be sold under the authority of The Swedish Enforcement Authority (SEA), will be randomly assigned (by SEA) to one of two different sale modes; either they will be assigned to a broker to be sold on the private market, in an open-market sale (the treatment group) or they will be assigned to be sold in an English-style auction run by SEA (the control group).
Intervention Start Date
2019-12-01
Intervention End Date
2021-12-01

Primary Outcomes

Primary Outcomes (end points)
1. Price: A continuous variable measured in tSEK available in all cases that results in the sale of the property.
2. Cost: A continuous variable measured in tSEK available in all cases. Costs include the cost for the professional market value appraisal, procedural costs, and brokerage fees.
3. Revocation: This is a dummy variable indicating whether the case is revoked by the creditors.
4. Sale: This is a dummy variable indicating whether the property is actually sold at auction or by a broker.
5. Duration: This is a continuous variable measuring the number of days from initiation of compulsory sale case handling at SEA to the sale of the property at auction or by a broker.
Primary Outcomes (explanation)
Regarding the cost variable:
a. The cost for the market value appraisal amounts to approximately tSEK 10 for a residential property and is charged in every case. Market value appraisers are publicly procured by SEA and the cost is predetermined by the contract.
b. The procedural costs are regulated in law and consists of a preparatory fee and a sales fee. The preparatory fee amounts to 1 per cent of the property’s tax value and is charged in every case at the point in time when either (i) the auction is publicly announced or (ii) SEA commissions brokered sale of the property. The sales fee amounts to 2 per cent of the tax value and is charged in a case that results in actual sale of the property in an auction. The minimum procedural costs amount to 20 % of price base amount (swe. prisbasbelopp), tSEK 9.3 per year 2019, and the maximum procedural costs amount to 150 % of the price base amount, about tSEK 70 per year 2019. The consequence of this regulation is that the preparatory fee in cases with brokered sale amounts to tSEK 9.3 for all properties with a tax value lower than tSEK 930.
c. Brokerage fees are charged in every case that results in brokered sale of the property. These fees are determined according to a publicly procured contract and is a function of the sale price of the property. The current holder of the contract is Svensk Fastighetsförmedling, which is a brokerage firm with national coverage. The fee is set as a percentage of the sale price. The rate is the highest for properties with low values. As of year 2019 it starts out at 14 per cent of the sale price in the range of tSEK201-400 and is sequentially lowered to a 1.4 per cent if the sale price exceeds tSEK 5,000. If the sale price is tSEK 200 or lower, or tSEK 8,000 or higher, then the fee is individually negotiated for that specific property. There is a new public procurement planned for year 2020, which means that the brokerage fees may change during the duration of the study.
d. In summary, the costs are anticipated to vary between approximately tSEK 20 to tSEK 80 for properties sold on auction. For properties sold by a broker, the minimum costs are approximately tSEK 50. For brokered sale, there is no upper limit to the costs, as they depend on the sales price. As an example, the costs for a property with a tax value of tSEK 500 and sold by a broker for tSEK 700 amount to approximately tSEK 63. By comparison, the costs for a brokered sale of a property with a tax value of tSEK 2,000 and a sale price of tSEK 2,500 amount to approximately tSEK 84.

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
General Research Design
This is an RCT design with brokered sale as the treatment and auction sale as the control group. The sampling ratio to the treatment and control groups is 1:1.

Inclusion criteria
SEA case-handlers determine if a specific property should be included in the study when the market value appraisal is delivered from the appraiser. The market value appraisal is a document describing the property and the appraised value. The appraiser always inspects the property physically if there are buildings on it.

The inclusion criteria are:
1. Property is legally eligible for brokered sale according to the Enforcement Code (ch. 12, par. 57)
2. Appraised value above tSEK 200
3. Property is registered as housing property or plot
4. No more than two registered owners.
5. No owner is deceased, if the estate is represented by more than two heirs.
6. There are no indications that the owner(s) will not cooperate.

These criteria are structured as a checklist for the case-handlers. This check list is annexed in Swedish (Annex A). The checklist enables the case-handlers to assess the inclusion criteria objectively. The case-handlers received training in brokered sale before the start of the study. They were then also informed about the study and the inclusion criteria by PI Lundholm.

Randomization
SEA case-handlers perform the randomization immediately after determining whether the property should be included in the study according to the inclusion criteria. Randomization is carried out as follows:
1. The case-handler checks whether the last digit of the case identification number is odd or even. These numbers are assigned to each case in sequential order by the operative data program employed for registration and case handling immediately upon initial registration of the case. This initial registration is carried out by appointed case-handlers as their sole task, which means that they are not involved in the case handling at later stages. Accordingly, it is not possible for the case-handlers responsible for assessment of inclusion criteria and randomization to affect or change this case identification number. There are about 15 case-handlers in total involved in the randomization at the different geographic sections.
2. If the last digit is even the case is assigned to the treatment group. The case-handler registers this in the data program with a flag specifically designed for this study.
3. If the last digit is odd the case is assigned to the control group. The case-handler registers this in the data program with a flag specifically designed for this study.

The randomization protocol with instructions for the case-handlers in Swedish is found in Annex B. The case-handlers were informed about this by PI Lundholm at the same time as they were trained in brokered sale and informed about the inclusion criteria.
Experimental Design Details
Compulsory Sale at SEA
Compulsory sale of real estates is handled by a separate sale division within SEA, which consists of different sale sections located in Luleå, Falun, and Helsingborg/Skövde. Each section consists of a manager and approximately 10 case-handling officers. A case is not appointed to a specific case-handler. Rather, the strategy is to solve all tasks as a team. This means that several different case-handlers may be involved in a specific case. The case-handlers may request support on legal issues from Senior Enforcement Officers (swe. kronofogde), who organizationally adhere to a different division.

All case handling starts in Luleå, where appointed case-handlers register new applications for compulsory sale. This is the only task that these case-handlers perform. The majority of the applications originate from either a mortgage creditor, invoking a verdict or order-to-pay with the right the payment by power of the lien established, or from enforcement sections at SEA, invoking attachment of the property. Upon registration in the case-handling software, each case is appointed a unique case identification number by the software. The case-handlers review the application for incomplete information. Once the application is complete, the case-handlers commissions a market value appraisal of the property from an independent, authorized, and professional appraiser according to locally procured contracts. Normally the appraisal is requested to be completed within three weeks.

When the market value appraisal is completed, case-handling responsibility is turned over to case-handlers at the different sale sections, depending on where the property is located. These case-handlers, which are never the same as the initial case-handlers reviewing the application, review the appraisal document and then decide whether the property should be sold at auction or by a broker. There are legal criteria that guide this choice. For most normal housing properties the main determinant is which sale format is projected by the case-handler to result in the highest sale price. Historically, SEA has sold almost all properties at auctions. This means that there is very little operative experience of handling brokered sale.

If the decision is to sell the property at an auction, the next step is to plan an auction date. Once this is decided, a date for the public viewing of the property is decided in collaboration with the local enforcement sections, since enforcement officers carry out the viewing. These dates, together with information about how much debt the property is attached for, are communicated with the stakeholders in a formal notice five week before the auction. The auction is publicly announced and advertised on the internet three weeks before the auction. The viewing normally takes place about one week before the auction.

The auction takes place physically at the SEA office closest to the property. The auctioneer is either a case-handling officer from the sale section or a senior enforcement officer. The auctioneer may conduct the auction via video link. The auction format is English-style with ascending bids. There is no reserve price, but the auctioneer informs the intending buyers that the property may not be sold unless the winning bid covers the costs and any debt with senior lien (swe. skyddsbeloppet). This amount is pre-determined before every auction and is based on the costs in the case and the claims from the mortgage creditors. The auctioneer also informs the intending buyers that a bid may be rejected if it is probable that a considerably higher price will be attained at a subsequent auction or by selecting a different sale format. This exact amount is not disclosed, since it is at the discretion of the auctioneer, primarily based on the number of intending buyers and bids, and whether there has been a previous attempt at selling the property. If the bid is accepted, the buyer immediately has to make a down payment amounting to 10 per cent of the winning bid, or the costs if they are higher. The auction normally last 30-60 minutes.

If the bid is not accepted, or if there are no bids at all, the auction is closed. If it was the first auction, the case-handlers then ask the creditors whether they request a second auction. In practice, the creditors always request a second auction, because it does not incur any additional costs. In this case, the case-handlers plan for a second auction and follow the same protocol as described above.

If it was the second auction, the case-handlers also ask the creditors about a request for a third auction. It is quite uncommon that the case-handlers agree to a third auction, which follows from the legal regulation. Since the creditors know this, they rarely request a third auction. Upon two unsuccessful attempts at selling the property on auction, the case-handlers close the compulsory sale case and bill the creditors the costs. The costs are divided according to the number of creditors in the case.

If the case-handler instead decides that the property should be sold by a broker, he or she communicates this intention with the stakeholders so that they may manifest any objections to this sale format, usually within seven days. When this deadline has expired, the case-handler commissions a broker according to a publicly procured contract. The current holder of the contract is Svensk Fastighetsförmedling, which is a brokerage house with national coverage. The broker may not refuse a commission. The case-handlers determine by which date the broker has to complete the sale at the latest, normally within three months. The broker then handles the sale, including viewing of the property, contacts with the owner(s) and intending buyers, and bidding. The broker informs intending buyers that it is a compulsory sale before the bidding starts. SEA case-handlers decide whether to accept the winning bid in the same way as for an auction sale.

If the broker does not receive any bid at all during the appointed time for the sale commission, or if the SEA case-handler decides that the winning bid is too low, the case-handler decides that the property instead should be sold at auction. The only exception is if the creditor refrains from auction sale. In that case the case is closed. Otherwise, the case-handler plans for an auction according to normal protocol. This auction is regarded as the second attempt at selling the property, which means that if the auction does not result in sale, the case is normally closed.

A compulsory sale case may be revoked at any time by the creditors. Unless all creditors revoke the case, case proceedings are continued. If the case is revoked by all creditors, the case-handlers bill the creditors for all costs in relation to the number of creditors. The case is then closed. There are two main reasons for revocations: either the debtor pays all debts, or the debtor reaches a settlement with all creditors about an alternative solution, such as voluntary sale, or forbearance, such as a repayment plan. The creditors may also request that SEA defers the proceedings for a specific time period. The case-handlers automatically comply with such a request from all creditors.

The time line for compulsory sale cases at SEA is quite short. According to the law, a first attempt at selling the property should be made within four months. Historically, the median number of days until the first auction was 113 days for housing real estates between 2010-2014.

SEA handles 3,000-4,000 compulsory sale cases per year. This includes both real estates and tenant-owned apartments. Historically about 70 per cent of the cases pertain to sale of real estates. The total number of actual sales per year is 700-1,100.

In summary, the following outcomes are possible in a compulsory sale case at SEA:
1. Revocation
2. Not sold
3. Sold

Other variables collected
The intervention variable is a dummy variable with value 1 for cases randomized to brokered sale and zero for auction sales.
Other variables collected:
1. Property market value: continuous variables measured in tSEK.
2. Property tax value: continuous variable measured in tSEK
3. Property location (municipality level): categorical variable with dummies for the municipality where the property is located.
4. Property tax code: categorical variable with dummies indicating type of housing property.
5. Number of property owners: dichotomous variable with a dummy for more than one property owner.
6. Number of sale attempts (both auction and broker): dichotomous variable with a dummy for more than one sale attempt.
7. Changed sale format from broker to auction: dichotomous variable with a dummy for cases that was randomized to the treatment group but eventually sold at auction.
8. Changed sale format from auction to broker: dichotomous variable with a dummy for cases that was randomized to the control group but eventually sold by broker.
9. Case-handler identification: Dummies indicating which SEA case-handler performed the assessment of inclusion criteria and randomization (de-identified).
10. SEA section identification: Dummies indicating which sales section the case-handler belong to (de-identified).
Analysis
Since all objects assigned to treatment (to brokered sale) might not lead to an actual sale by the broker, we estimate intention-to-treat parameters.
Randomization Method
Randomization is determined by the last digit of the case identification number (whether it is odd or even). These numbers are assigned to each case in sequential order by the operative data program employed for registration and case handling immediately upon initial registration of the case by appointed case-handlers. This is the sole task of these case-handlers and they are not involved in case handling at later stages. This means that it is not possible for the case-handlers responsible for assessment of inclusion criteria and randomization to affect or change this case identification number.
Randomization Unit
Real estate properties
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
700
Sample size: planned number of observations
700 properties
Sample size (or number of clusters) by treatment arms
350 treatment properties and 350 control properties
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
See pre-analysis plan
Supporting Documents and Materials

Documents

Document Name
Data
Document Type
other
Document Description
File
Data

MD5: 5bea72f5c43b65ee2cdeedd6c33d32a8

SHA1: 53ea873a10b37295533217a0d347cbed5cbce2e4

Uploaded At: November 20, 2019

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IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

Analysis Plan Documents

Pre-analysis plan and code

MD5: ad4ccfdc2b9edebee2afb10393ed5a7a

SHA1: b822190d04ad3a81a53555f9397a59338ba0a90e

Uploaded At: November 20, 2019

update_analysis_plan.pdf

MD5: b426693527ac2b6698025482eca96edb

SHA1: 6c87101e2424b06f35c3873ae785d85521137fc9

Uploaded At: December 14, 2021

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

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