Valuation and Efficiency in the Market for Creatively Financed Houses

David Dale‐Johnson, M. Chapman Findlay, Arthur L. Schwartz and Stephen D. Kapplin

Real Estate Economics, 1985, vol. 13, issue 4, 388-403

Abstract: This paper examines two alternative approaches to valuing the impact of creative financing on housing prices. The cash equivalence adjustment which is the generally accepted approach is compared to an approach known as the financed fee valuation adjustment which is argued to be theoretically superior. A sample of 45 matched pairs of condominium sales in which one of the units is creatively financed and the other is conventionally financed is employed to test which model is most effective at explaining the market adjustment for creative financing. The authors are unable to reject the hypothesis that the housing market being examined is efficient and that the financed fee valuation adjustment is a superior model for valuing the impact of creative financing.

Date: 1985
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