Information, Search, and House Prices: Revisited

Information, Search, and House Prices: Revisited Buyers pay different prices for nearly identical homes. One explanation for this is that housing markets are thin, resulting in price bargaining between sellers and buyers. If the relative bargaining power of buyers varies, so will sales prices. One hypothesis is that the relative bargaining strength of buyers coming from outside the local market relative to that of local residents is weak, because distant buyers have high search costs and may know less about the nuances of the local market. Our results, based upon a large number of single-family home transactions from the state of Florida, lend support to this hypothesis. Another related hypothesis is that buyers’ price expectations are anchored to prices they were accustomed to at their previous residence. Hence, if they come from high price markets they will tend to pay more for their new home. This hypothesis is also supported by our results. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Information, Search, and House Prices: Revisited

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Publisher
Springer Journals
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-010-9282-z
Publisher site
See Article on Publisher Site

Abstract

Buyers pay different prices for nearly identical homes. One explanation for this is that housing markets are thin, resulting in price bargaining between sellers and buyers. If the relative bargaining power of buyers varies, so will sales prices. One hypothesis is that the relative bargaining strength of buyers coming from outside the local market relative to that of local residents is weak, because distant buyers have high search costs and may know less about the nuances of the local market. Our results, based upon a large number of single-family home transactions from the state of Florida, lend support to this hypothesis. Another related hypothesis is that buyers’ price expectations are anchored to prices they were accustomed to at their previous residence. Hence, if they come from high price markets they will tend to pay more for their new home. This hypothesis is also supported by our results.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 2, 2010

References

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