First-Sale Bias and Age Effects: Do 'New' Properties Sell at a Premium?

20 Pages Posted: 25 Aug 2008

See all articles by Danika J. Wright

Danika J. Wright

The University of Sydney - Discipline of Finance

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Maurice Peat

The University of Sydney; Financial Research Network (FIRN)

Date Written: August 25, 2008

Abstract

In this paper the affect of age on the price of residential property is investigated. A significant premium is observed in the price of newly constructed property. A regression analysis indicates that new houses (units) sell at a premium, relative to an otherwise identical property, of 11% (19%) in Adelaide, and 10% (7%) in Perth. These properties then underperform the market over the period until a subsequent sale of the property. This pattern is consistent with the empirical results on initial equity offering overpricing and subsequent underperformance. Taken together theses' results indicate a nonlinear relationship between the age of a property and its price. This nonlinearity provides a challenge to modellers building pricing models based on standard linear hedonic functions with age as factor.

Keywords: Information asymmetry, housing market, matched sampling

JEL Classification: C21, D82, G14, R31

Suggested Citation

Wright, Danika J. and Frino, Alex and Peat, Maurice, First-Sale Bias and Age Effects: Do 'New' Properties Sell at a Premium? (August 25, 2008). 21st Australasian Finance and Banking Conference 2008 Paper, Available at SSRN: https://ssrn.com/abstract=1254663 or http://dx.doi.org/10.2139/ssrn.1254663

Danika J. Wright (Contact Author)

The University of Sydney - Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Alex Frino

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Maurice Peat

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
25
Abstract Views
353
PlumX Metrics