Sample Selection Approaches to Estimating House Price Cash Differentials

Posted: 17 Jan 2017

See all articles by Andres Jauregui

Andres Jauregui

Columbus State University - D. Abbott Turner College of Business

O. Alan Tidwell

Columbus State University

Diane Hite

Auburn University - Department of Agricultural Economics and Rural Sociology

Date Written: January 13, 2017

Abstract

We extend the literature on house price cash differentials in important ways. First, our paper is the first to employ methods to correct for sample selection bias, using both switching regression and propensity score matching of cash vs. non-cash transactions. We use selection models to produce price counterfactuals for cash and non-cash buyers. We also include both average treatment effect and a propensity score weighted selection models. From the selection models, we find that previous studies likely overstate the cash discount. Results from counterfactual tests examining cash discounts suggest amplified cash discounts in areas with close proximity to an environmental hazard; and also a pricing differential based on CBG level income, with purchasers in high income areas more likely to pay a cash premium compared to market participants in areas with comparably lower income, where a cash discount is detected. These results provide useful insights for market participants including real estate appraisers, brokers, and buyers and sellers of real estate.

Keywords: Housing; Cash discount; Environmental economics; Sample selection; Valuation

Suggested Citation

Jauregui, Andres and Tidwell, O. Alan and Hite, Diane, Sample Selection Approaches to Estimating House Price Cash Differentials (January 13, 2017). Journal of Real Estate Finance and Economics, Vol. 54, No. 1, 2017, Available at SSRN: https://ssrn.com/abstract=2898986

Andres Jauregui

Columbus State University - D. Abbott Turner College of Business ( email )

Columbus, GA 31907-5645
United States

O. Alan Tidwell

Columbus State University ( email )

Columbus, GA 31907-5645
United States

Diane Hite (Contact Author)

Auburn University - Department of Agricultural Economics and Rural Sociology ( email )

Comer Hall
Auburn, AL 36849
United States
334-844-5655 (Phone)
334-844-5639 (Fax)

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