The Vickrey auction format was developed by Canadian-American economics professor William Vickrey who later won a Nobel Peace Prize in Economics for his work with asymmetric information. Vickrey’s auction model is based on a standard sealed-bid auction-style, but the price paid is the second-highest price, not the first.
“Normally people are scared to participate in a bidding war […] in this way people know that if they are bidding too high they will pay the second highest price. This motivates people to offer a much more reasonable market price,” says Zhang.
Buyers are entering into a bidding war and often over-bid and end up withdrawing deposits causing sellers to lose a sale, Zhang says. With the Vickrey model, buyers are much more motivated to submit a price that’s closer to what they can pay, resulting in a win-win for buyers, sellers, and agents.
Zhang believes that he is the first agent in Toronto to sell a home using the Vickrey auction model. 15 Yorkview Drive is a good test of the auction philosophy as new homes in the area usually sell quickly.
“I’ve noticed that people win a bidding war and then they don’t want the house, so the second-highest offer wins,” Zhang says, ‘but when people see the price difference, which could be $40,000, they often think the agent is cheating them. In a Vickrey auction, this doesn’t happen.”
The auction is scheduled for March 19th, 2021.