Forced Sales and Farmland Prices

In this paper we analyse agricultural land prices in the German Federal State of Brandenburg within the period 2000-2011. Our objective is to understand the price formation process in foreclosures. One effect of foreclosures relates to pressured sales, which likely lead to a price discount, and another effect relates to public auctions leading to a price premium. The overall effect is derived using direct covariate matching. Our results show that on average, price premia rather than price discounts are realized in forced sales of farmland. The price differential, however, is not constant and depends on prevailing land market conditions.