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Do Buyer Incentives Work for Houses during a Real Estate Downturn?

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Abstract

The impact of incentives on marketing duration is examined for residential real estate using data from the Multiple Listing Service during a real estate downturn. The focus is on incentives offered directly by sellers to potential homebuyers. The evidence suggests that incentives are not capitalized into the selling price during the softened market conditions. Alternatively, incentives are found to have a significant reduction in marketing time, however this is found to be true only for closing costs and not for other incentive classifications. The benefit of reduced expected market time from offering incentives is quickly diminished when the seller initially overprices the listing by a large amount.

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Notes

  1. Collected from housing vacancy data reported by the US Census Bureau. The highest homeownership vacancy rate was 2.9 % in both 2008 and 2009. Pre-2007, this rate was never more than 2.2 %.

  2. From the third quarter of 1971 thru the first quarter of 2012, the interest rate on new mortgage originations reported quarterly by the Federal Housing Finance Agency averages 8.75 %. The Case-Shiller Home Price Index reports negative home price growth for 18 of these 163 quarters. For the 18 quarters with negative home price growth the mortgage rate averages less than 5.3 % and the 10th percentile for the series is 5.5 %.

  3. Sample selection bias has been corrected using this measure in a number of real estate studies including, Elder et al. (2000), Munneke and Slade (2000) and Benefield et al. (2011b).

  4. For discussion, see Zuehlke (1987), Forgey et al. (1996), Springer (1996), Anglin et al. (2003), Knight (2002), Benefield et al. (2011b) and Turnbull and Zahirovic-Herbert (2011).

  5. This is consistent with findings from Springer (1996) and Benefield et al. (2011a).

  6. Forgey et al. (1996) find a higher selling price for properties sold in Spring. Springer (1996), however, finds negative coefficients for properties listed or sold in Spring, Fall or Summer. The differences are likely attributable to different market conditions and locality.

  7. Springer (1996) finds that motivated sellers take longer to sell their properties. Benefield et al. (2011a) also find a positive coefficient for the motivated variable.

  8. Springer (1996) also finds reduced marketing times for foreclosed residential assets.

  9. Haurin (1988) finds that houses listed in the Summer sell faster.

  10. The benefit from incentives when the degree of overpricing is 53.4 % is calculated as −0.272 + 0.509*(0.534) = 0.

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Authors and Affiliations

  1. Department of Real Estate, J. Mack Robinson College of Business, Georgia State University, 35 Broad St., Suite 1405, Atlanta, GA, 30303, USA

    Kenneth W. Soyeh & Jonathan A. Wiley

  2. Department of Finance and Real Estate, Florida International University, 11200 SW 8th Street, MARC 230, Miami, FL, 33199, USA

    Ken H. Johnson

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  1. Kenneth W. Soyeh
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  2. Jonathan A. Wiley
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  3. Ken H. Johnson
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Correspondence to Jonathan A. Wiley.

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Soyeh, K.W., Wiley, J.A. & Johnson, K.H. Do Buyer Incentives Work for Houses during a Real Estate Downturn?. J Real Estate Finan Econ 48, 380–396 (2014). https://doi.org/10.1007/s11146-012-9394-8

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