Asymmetric buyer information influence on price in a homogeneous housing market

Abstract

Buyers often pay different prices for almost identical houses. One possible explanation is that there are information asymmetries in housing markets. Perhaps, buyers from outside the area have higher search costs and know less about the local market relative to that of current residents. In addition, an out-of-town buyer's price expectations could be anchored to market prices in their town of origin. This study examines the effect of buyer heterogeneity in the form of geographic location on house prices. We use a new data set to examine the non-local buyer information asymmetry and anchoring hypothesis. Using transaction data from a large development in Chengdu, China, our empirical models are estimated with relatively homogeneous units sold over a short period of time by one seller to minimise possible bias resulting from omitted variables. Our results support the hypotheses that non-local buyers pay higher prices and that high price anchoring occurs.

Time-on-Market in Chinese Condominium Presales

“…As expected, larger units sell for higher prices. As shown in Table 4, whether a unit is located in a high-rise building, the unit's floor, and whether it faces south are significant, indicating units in 18-story buildings as well as on the top or bottom floor sell for higher prices than those in mid-rise buildings or middle floors while those units facing south sell at a premium to those facing other directions, similar coefficients as those found in another Chengdu study (Zhou, Zahirovic-Herbert, & Gibler, 2015). The prestige and views afforded by a high-rise building appear to outweigh the disadvantages of more residents.…”

Bargaining power in apartment sales in Corsica: A latent class approach

“…They test the hypothesis that the relative bargaining strength of buyers coming from beyond the local market is relatively weak because of high search costs and find support for the hypothesis through an examination of single-family home transactions in Florida. Using data from China, Zhou et al (2015) also find that buyers outside the local market pay higher prices and that price anchoring occurs. Chandra et al (2017) examine differences in prices for new cars and find that differences in demographic characteristics explain at least 20% of the observed variation in prices.…”

Externalities and House Prices: A Stated Preferences Approach

“…In recent years, some economist discussed the theoretical foundations of the method and addressed the role of uncertainty and asymmetric information in the hedonic price formation. The problem has been studied in the literature both theoretically and empirically -see Pope (2008), Kumbhakar and Parmeter (2010) or Zhou, Gibler and Zahirovic-Herbert (2015).…”