Comparables-Constrained Asset Prices *

We develop a model of asset pricing in which buyers are either unable or unwilling to buy an asset at a price substantially above its price in recent transactions. This constraint could result from legal restrictions on appraisals, behavioral preferences, or agency problems. The model features momentum, differential pricing for identical assets, buyers' and sellers' markets, and associations between price appreciation, volume, and liquidity. We apply the model to the market for residential real estate, in which a bank's willingness to lend for a home purchase is limited by the appraisal, which is, in turn, generated by recent transaction prices of similar properties. The model's predictions are consistent with known stylized facts in residential real estate markets and suggest several avenues for future research.

Keywords: Comparables, Comps, Momentum, Appraisals, Real Estate, Seller's Market, Buyer's market, Flipping JEL: G11, R30

JEL Classification: G11, R30

Suggested Citation: Suggested Citation

Martel, Jordan and Van Wesep, Edward Dickersin and Waters, Brian, Comparables-Constrained Asset Prices * (November 10, 2016). Available at SSRN: https://ssrn.com/abstract=2867730 or http://dx.doi.org/10.2139/ssrn.2867730