Sales Concessions in the US Housing Market
J Real Estate Finan Econ, DOI 10.1007/s11146-016-9592-x
56 Pages Posted: 22 Jan 2017
Date Written: November 18, 2016
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.
Keywords: Buyers’ incentives, Sellers’ concessions, Sellers’ motivations, Closing costs, Home warranties, Home repairs
JEL Classification: D12, R21, R31
Suggested Citation: Suggested Citation