Discount Brokerage in Residential Real Estate Markets

Transaction costs are thought to affect asset prices and market liquidity, but the direction and magnitude of these effects continue to be the subject of debate. In the single‐family residential market, discount brokers offer to list a house for a lower price and thus reduce the transaction costs associated with obtaining a match. In this article we obtain empirical estimates of the price and liquidity impact of a seller selecting a discount broker to market a single‐family residential property. The unique data set allows for the identification of residential properties that were listed by a discount brokerage firm. The empirical results confirm the predictions of our theoretical model. Using a sample of 318,221 listings and 243,625 sales, we find that houses listed by discount brokers sell at prices similar to non‐discount brokerage listings, but are less likely to sell, and when they do sell, take approximately three days longer to sell. The results indicate that lower transaction costs do not impact housing prices in this market, but that they are related to asset liquidity.     

Real Estate Brokers and the Market for Residential Housing

This study explores the role of the real estate broker in the housing market. A model of the demand for broker services by both sellers and buyers is developed and conditional logit estimates are presented. Evidence relating to the effects of the brokerage industry on housing market transactions also is presented. Brokers do not seem to affect the prices of the houses they sell. But they do influence the level of housing consumption by buyers.     

A Test of Weak-Form Efficiency in Residential Real Estate Returns

This paper tests weak-form efficiency of residential real estate returns for the city of Memphis, Tennessee. The database for the study is comprised of the population of all sales of single-unit residential property over a fifteen-year period, 1970–1984. The city was divided into ten submarkets based on Memphis City Planning Commission planning districts. An analysis of variance procedure was utilized to stabilize the variance both within and across submarkets and nonmarket financing was partially controlled by eliminating transactions with loan-to-value ratios greater than 95%. The remaining transactions were then used to generate a mean return series. The advantage of the mean over the single transaction series used by Gau is that it represents the most likely outcome for the investor trying to duplicate investment performance since "property unique" features would be expected to cancel. Seven of the ten submarkets exhibited time patterns; however, after adjusting for transaction costs, all ten submarkets were determined weak-form efficient for the period 1970–1984. This was not true for the short horizon holding period, 1970–1975. In four sub-markets an asymmetric version of Alexander's filter rule was able to outperform a buy-and-hold, even for round- trip transaction costs as high as 10%.     

Controlling for the Impact of Variable Liquidity in Commercial Real Estate Price Indices

Liquidity in private asset markets is notoriously variable over time. Therefore, indices of changes in market value that are based on asset transaction prices will systematically reflect intertemporal differences in the ease of selling a property. We define and develop a concept of "constant-liquidity value" in the context of a model that is characterized by pro-cyclical volume of trading. We then present an econometric model that allows for estimation of both a standard transaction-based price index and a constant-liquidity index. Our application to the NCREIF database reveals that, in the case of institutional commercial real estate investment, constant-liquidity values tend to lead transaction-based and appraisal-based indices in time, and also to display greater volatility and cycle amplitude. The differences can be significant for strategic investment policy viewed from a mean-variance portfolio optimization perspective.     

Economic Depreciation of Residential Real Estate: Microlevel Space and Time Analysis

Three elements in the study of real estate depreciation that warrant further consideration are uncovered: the spatial variation of depreciation on a micro scale, the variability of depreciation within a single market across time and the recognition of land value as an influence in modeling real property prices. Taken together, these three dimensions provide an opportunity to further expand the understanding of residential economic depreciation while enhancing the predictive power of real estate market models. The analytical results, utilizing a land-value-adjusted hedonic model, indicate that both the intramarket location and the year in which the property sold have significant impacts on the observed rate of economic depreciation. Such information is vitally important to policymakers and others interested in accurate modeling of real estate markets.     

房产

城市别墅全享价值,五期临河珍藏火热公开 距离徐家汇仅约20分钟车程的银都名墅,以近7成的土地面积建造江南园林景观。是一座城市中的森林公园。银都名墅专门挑选30年以上的成年桦树.种植在中国居住文化里象徵阖家兴旺的竹林。     

On the Price Comovement of U.S. Residential Real Estate Markets

We investigate the comovement among Case‐Shiller Home Price Indices for 14 metropolitan areas between 1992 and 2008. We define the portion of this comovement deemed as fundamental (excessive) as the covariation that can (cannot) be attributed to common fundamental factors directly influencing real estate prices. We find that i) comovement among these markets considerably increased over the sample period, especially in the late 1990s; ii) this increase is mostly attributable to underlying systematic real and financial factors, consistent with a greater fundamental integration of those markets; and iii) excess comovement is a less important factor than commonly believed. We discuss the implications of these results for the evolution of U.S. real estate prices over the last two decades and the ongoing credit crisis.     

Personal Residential Real Estate Investment in Australia: Investor Characteristics and Investment Parameters

To date our understanding of the factors affecting the housing supply stem from the private provision of new units through real estate development. This article investigates a different aspect of housing supply, the private provision of rental housing through investment in existing properties. Using logistic regression and a series of micro data sets of Australian households, we examine the investment decision of residential rental property investors over the period 1990–2004. The sample period incorporates a full real estate cycle. Our results indicate that wealth-related factors are the dominant factors driving these investments. Life-cycle factors such as marriage and children play a less important role. Most of the determinants of income property investment do not vary with the property cycle. Marriage is an exception. It became more important as house prices rose.     

Competition and Efficiency in Transacting: The Case of Residential Real Estate Brokerage

This paper examines the functioning of the market for brokerage services for residential real estate. The central issue addressed is whether the manner in which brokerage services have traditionally been provided and priced is consistent with efficiency. In approaching this question, the paper first describes the activities usually associated with the brokerage function and develops criteria for the efficient provision of brokerage services. After the structural characterisitcs and pricing practices of the brokerage industry are analyzed, a model of brokerage firm competition is developed. The principal finding is that the traditional absence of price competition among brokers may have led to an inefficiently large commitment of resources to the brokerage industry, supported by excessive rates for consumers of brokerage services. These results stem from the way that competitive pressures emerge when price competition is largely suppressed.     

Residential Real Estate Brokerage Efficiency and the Implications of Franchising: A Bayesian Approach

This paper provides substantial evidence that real estate brokerage firms choosing to franchise are more cost-efficient than firms that remain independent. It uses 1995 cost data obtained from a nationwide survey of real estate brokerages to analyze the differences in firm efficiency across firm type—franchised and independent. We estimate a single stochastic cost frontier using Bayesian statistics and measure firm efficiency relative to that frontier conditional on firm type. The results indicate that real estate brokerages are relatively efficient, implying a competitive market, but franchised brokerages are substantially more efficient than their independent counterparts.     

Price Behavior and Capital Gains on Residential Real Estate: The Case of Sweden*

During most of the postwar period the increase of the prices of single-family homes in Sweden have exceeded the general inflation, while for several years the opposite is true of apartment houses. We discuss the reasons and present estimates of capital gains attached to this price behavior. It turns out that apartment houses have often yielded nominal but no real capital gains. Single-family homes have yielded real accrued capital gains amounting to approximately 3% of GNP during the period 1963–1976. We also present a rough indirect method of estimating realized capital gains, first disregarding, and then including the effects of loans.     

Demand Uncertainty,Development Timing and Leasehold Land Valuation: Empirical Testing of Real Options in Residential Real Estate Development

This article develops and tests a long‐dated American call option pricing model for valuing development land under leasehold. We analyze and test option values in ten detailed Hong Kong cases involving purchase, holding, converting and developing land. We also test for optimal exercise of long‐dated American calls using processes based on the optimal trigger ratio feature of the perpetual American call option model. Generally, the empirical results confirm presence of a positive and nontrivial option premium (mean +5.274%) in the cases, and that developers appear to delay exercise to the point predicted by the real options model.     

Commercial Real Estate Returns

In the commercial real estate market, which is perceived to be relatively inefficient, investors have comparative advantages; hence there are significant costs to diversification. This paper presents for the first time a series of market (or quasi-market) returns for a large data base. This data base is believed to be the most complete commercial real estate data base yet constructed. The paper empirically evaluates the benefits of diversification along various dimensions within the commercial real estate opportunity set. The analysis confirms certain aspects of prior work concerning inflation protection and diversification opportunities while concluding that even investment grade real estate investments are heterogeneous assets.     

Optimal Real Estate Portfolios

In recent years, increasing attention has been paid the problem of analyzing, evaluating and selecting real estate investments within the context of a portfolio. Most approaches simply attempt to adapt existing theory and models from the well-developed literature of securities investments. Most adaptations or extensions to real estate are not without serious problems, however, because of several fundamental difficulties relating to optimization technology inadequacies and a general lack of reliable and consistent market data.
This article deals with the major problems of utilizing some of the classic securities investment models for real estate. Further, a risk-return model is advanced which overcomes most of the fundamental problems outlined earlier in the article.     

Research on Real Estate Investment

AREUEA is pleased to acknowledge the financial support of the National Council of Real Estate Investment Fiduciaries (NCREIF) whose members are listed on the preceding page. We also thank Mike Miles for his role in maintaining an excellent relationship between NCREIF and AREUEA over the years. Finally, the editors acknowledge the continuing financial support of their colleges at The Ohio State University and of the Homer Hoyt Institute.     

Real Estate Returns and Inflation

The ability of assets to protect an investor from purchasing power risk due to inflation has received a good deal of attention in the literature recently. The focus of much of this research has been on the properties of common stocks as inflation hedges. Bodie [1976] finds that the real return on equity is negatively related to both anticipated and unanticipated inflation; a similar result is obtained by Fama and Schwert [1977] . Bernard and Frecka [1983] examine individual common stock returns and find that the majority exhibit this negative relationship. This paper uses similar logic to examine the ability of a well-diversified portfolio of real estate to hedge against anticipated and unanticipated inflation.