Some Remarks on Real Estate Pricing

Cocker Liu, Adam Nowak and Patrick Smith
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Cocker Liu: Cornell University
Adam Nowak: West Virginia University, Department of Economics
Patrick Smith: San Diego State University

No 17-20, Working Papers from Department of Economics, West Virginia University

Abstract: This paper develops a framework for addressing the omitted variable bias that plagues most real estate research. We incorporate qualitative information from text to control for property attributes that are generally unobserved. The textual information is entered by real estate agents for every property sold on a Multiple Listing Service (MLS). The agents, who arguably have the most local market and property specific knowledge, use the unstructured text to highlight important information that is not clearly conveyed in other areas of the listing. Although the framework can be applied universally in real estate research, we demonstrate its effectiveness in the estimation of agent-owned sales premiums. Similar to previous studies, we find agent-owned premiums between 2% to 6% when no textual information is included. When we include the textual information the agent-owned premiums dissipate. The results suggest that the market distortions reported in Rutherford et al. [2005] and Levitt and Syverson [2008] do not exist.

Keywords: Omitted variable bias; textual analysis; agent-owned; agency problem (search for similar items in EconPapers)
JEL-codes: R00 R33 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-09
New Economics Papers: this item is included in nep-ure
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