The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study Using Propensity Scores

The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study... We examine the impact of seller’s Property Condition Disclosure Laws on residential real estate values. A disclosure law may address the information asymmetry in housing transactions shifting risk from buyers and brokers to the sellers and raising housing prices as a result. We combine propensity score techniques from the treatment effects literature with a traditional event study approach. We assemble a unique set of economic and institutional attributes for a quarterly panel of 291 US Metropolitan Statistical Areas (MSAs) across 50 US States spanning 21 years from 1984 to 2004. The study finds that the average sales price of houses in a metropolitan area increases by an additional 3 to 4% over a 4 year period if the state adopts a Property Condition Disclosure Law, which is consistent with approximately a 19 basis point or 6.4% reduction in the risk premium associated with purchasing owner-occupied housing. When we compare the results from parametric and semi-parametric (propensity score) event analyses, we find that the semi-parametric analysis generates moderately larger estimated effects of the law on housing prices. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study Using Propensity Scores

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Publisher
Springer Journals
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-009-9206-y
Publisher site
See Article on Publisher Site

Abstract

We examine the impact of seller’s Property Condition Disclosure Laws on residential real estate values. A disclosure law may address the information asymmetry in housing transactions shifting risk from buyers and brokers to the sellers and raising housing prices as a result. We combine propensity score techniques from the treatment effects literature with a traditional event study approach. We assemble a unique set of economic and institutional attributes for a quarterly panel of 291 US Metropolitan Statistical Areas (MSAs) across 50 US States spanning 21 years from 1984 to 2004. The study finds that the average sales price of houses in a metropolitan area increases by an additional 3 to 4% over a 4 year period if the state adopts a Property Condition Disclosure Law, which is consistent with approximately a 19 basis point or 6.4% reduction in the risk premium associated with purchasing owner-occupied housing. When we compare the results from parametric and semi-parametric (propensity score) event analyses, we find that the semi-parametric analysis generates moderately larger estimated effects of the law on housing prices.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Sep 23, 2009

References

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