Leveling the playing field: out-of-town buyer premiums in US housing markets over time

Katrin Kandlbinder, Norman G. Miller and Michael Sklarz

International Journal of Housing Markets and Analysis, 2019, vol. 12, issue 3, 377-404

Abstract: Purpose - Historically, research shows that out-of-town buyers of real estate are informationally disadvantaged and therefore pay higher prices compared to in-town buyers. However, with the recent advent of online housing platforms, a plethora of information about the housing market is provided for free. The purpose of this paper is to examine whether out-of-town buyers do in fact pay a premium and why, and whether this premium has decreased because of better information availability. Design/methodology/approach - A hedonic regression model over a ten-year window (2005, 2015) is developed to analyze condominium transactions in Miami-Dade County. The results are validated by various robustness checks and the propensity score matching algorithm to identify a comparable control sample for 2015 in terms of relevant housing characteristics. Findings - The results support the hypothesis that out-of-town buyers pay higher prices for real estate, compared to their local counterparts, and that both search costs and anchoring cause a premium in both years, whereas wealth only plays a significant role in 2005. The premium because of search costs, and therefore, information availability has decreased slightly over time. Originality/value - This is the first out-of-town paper that compares two points in time versus a single cross-section analysis. Besides the premium caused by information asymmetry/search costs measured by distance and the anchoring effect, the regression model is extended by the wealth effect.

Keywords: Information availability; House prices; Asymmetric information; Anchoring; Out-of-town buyer; Search costs (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:ijhma-02-2018-0017

DOI: 10.1108/IJHMA-02-2018-0017

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