Sales Concessions in the US Housing Market

This article examines the use of concessions in the US housing market, specifically payments for closing costs, home warranties, and structural repairs. This is the first study to examine the motivations and characteristics of homeowners that utilize concessions. It also examines the impact concessi...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2018, Vol.56 (1), p.33-75
Main Author: Hayunga, Darren K.
Format: Article
Language:English
Subjects:
Bargaining
Buyers
Compromises
Economic models
Economics
Economics and Finance
Financial Services
Housing market
Leverage
Marketing
Payments
Power
Prices
Regional/Spatial Science
Sales
Transactions
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Summary:This article examines the use of concessions in the US housing market, specifically payments for closing costs, home warranties, and structural repairs. This is the first study to examine the motivations and characteristics of homeowners that utilize concessions. It also examines the impact concessions have on transaction prices and marketing durations. While the literature has attempted to determine if concessions can reduce marketing durations or increase transaction prices, the evidence is tainted by endogeneity and sample issues. Additionally, we find that relative bargaining power between buyers and sellers has a fundamental effect on how concessions alter prices and marketing durations. This aspect has been considered only narrowly in the extant literature. Our results demonstrate that when sellers have bargaining power, transactions including concessions exhibit higher prices and shorter marketing durations. Conversely, when buyers have greater negotiation leverage, transactions including concessions experience lower prices and longer marketing periods.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-016-9592-x