Not All Bids Are Equal: Racial Gaps in Housing Markets

The Institute for Research on Poverty hosts seminars on the UW-Madison campus most Thursdays during the academic year. These presentations are free and open to the public. Room 8417.

media release: Lecture by: Lu Han, professor, Department of Real Estate and Urban Land Economics, University of Wisconsin-Madison

We study racial disparities in housing transactions using novel data that observe the full set of offers submitted for residential properties, including both accepted and rejected bids. Exploiting within-listing comparison across competing offers, we show that minority buyers bid less on average yet pay more conditional on winning. Holding bid amount, rank, and detailed offer terms constant, minority buyers are significantly less likely to have their offers accepted. This joint pattern is difficult to reconcile with explanations based solely on heterogeneous preferences, financing constraints, or search costs. Instead, it points to differential acceptance thresholds applied by sellers. 

We estimate a conditional logit model of seller choice and quantify the  bid-equivalent penalty faced by minority buyers. The implied penalty is economically large - approximately  2 - 3 percent of home value and persists even among all-cash offers. Disparities widen in tighter and faster-turnover markets, in listings with more competing bidders, and in neighborhoods undergoing amenity improvement and demographic transition. Racial disparities are therefore not uniform: they intensify where sellers have stronger outside options and where the identity of the marginal buyer is perceived as consequential. Our evidence shows that racial gaps operate through endogenous acceptance thresholds that vary with market structure and neighborhood dynamics.