Buyer Exuberance and Price Premium

Neo, Poh Har; Ong, Seow Eng; Tu, Yong

doi:10.1177/0042098007085966

Cited by 13 publications

(5 citation statements)

References 38 publications

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“…A probit model is estimated for the probability that an office building selected by a local buyer will involve buyer representation. The probit model includes variables for land area, building size, property age, along with indicators for property class, multi-tenancy, buyer classification 3 , acquisition timing, geographic market, and sale conditions 4 . For each observation of a local buyer who purchased an office building with buyer representation, an observation for a local buyer who did not have buyer representation is collected.…”

Section: Methodsmentioning

confidence: 99%

“…Economic rationale for higher prices paid by nonlocal buyers in housing markets include higher search costs and informational disadvantages-formalized in the model by Turnbull and Sirmans [6]. Support for the explanation based on information asymmetry is documented by Neo, Ong and Tu [4], who find that foreigners pay higher premiums for low-rise condominiums which are more heterogeneous and difficult to value than high-rise units. Anchoring is a more specific version of informational disadvantage where buyers from distant markets apply false reference points of asset values from their home market.…”

Section: A) Nonlocal Clienteles In Real Estate Marketsmentioning

confidence: 97%

“…Studies for nonlocal investor clienteles include forest parcel sales in Adirondack Park [2], apartment rents paid by new residents [3], condominiums in Singapore [4], investment houses in Las Vegas [5], and house prices in Baton Rouge [6], Glasgow [7] and Florida [8]. Economic rationale for higher prices paid by nonlocal buyers in housing markets include higher search costs and informational disadvantages-formalized in the model by Turnbull and Sirmans [6].…”

Section: A) Nonlocal Clienteles In Real Estate Marketsmentioning

confidence: 99%

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The Information and Bargaining Roles of Commercial Brokers When Investors Are Uninformed

Wiley¹,

Liu²,

Guo³

et al. 2019

TEL

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Market outcomes are contrasted for uninformed investors with and without broker representation to evaluate the information role, and for parties opposing the uninformed (with and without representation) to evaluate the bargaining role. The setting is a sample of 17,000 office building transactions in more than 100 US markets, and the identification strategy for uninformed investors is based on the nonlocal clientele effect. Nonlocal investors buy high and sell low, paying significant premiums in acquisitions and accepting discounted offers in divestitures. Employing a commercial broker is found to have virtually zero impact on this disparity. Moreover, when the opposite party has broker representation, the degree of overpayment by nonlocal buyers is even higher. These findings are at odds with the conventional notion that brokers possess a high degree of specialized market knowledge which can be used to offset informational disadvantages suffered by their clients.

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Section: Methodsmentioning

confidence: 99%

Section: A) Nonlocal Clienteles In Real Estate Marketsmentioning

confidence: 97%

Section: A) Nonlocal Clienteles In Real Estate Marketsmentioning

confidence: 99%

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The Information and Bargaining Roles of Commercial Brokers When Investors Are Uninformed

Wiley¹,

Liu²,

Guo³

et al. 2019

TEL

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“…In line with the well-established literature addressing the non-local effects, we found a price premium paid by non-local buyers. Apart from our information asymmetry account, which is also documented in Neo et al (2008), Liu et al (2015), and Zhou et al (2015), several other explanations exist for the price premium including unobservable selection bias (Ling et al, 2018), anchoring (Lambson et al, 2004;Ihlanfeldt & Mayock, 2012), and investor clienteles (Wiley, 2012). However, to the best of our knowledge, given the fact that non-local buyers paying a premium has been well-documented, relatively few studies devote attention to the influence of non-local buyers on the local real estate market.…”

Section: Introductionmentioning

confidence: 95%

Information Asymmetry with Heterogeneous Buyers and Sellers in the Housing Market

Ling

Chau

2023

J Real Estate Finan Econ

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This study examines how heterogeneous traders on both sides of transactions behave in the housing market under information asymmetry. Two types of buyers, namely, informed and uninformed buyers, correspond to local and non-local buyers in the empirical tests. Non-local housing buyers in Hong Kong pay a 2.8% premium over local buyers in the second-hand market for housing units with similar observable attributes. We distinguish real estate developers from sellers in the second-hand market. The former has an incentive and ability to reduce information asymmetry by providing a quality guarantee on the building structure and signaling with brand name, none of which can be fulfilled by sellers in the second-hand market. Empirical results show that developers’ efforts to reduce information asymmetry allow them to fetch a higher price than sellers in the second-hand market, holding property characteristics constant. Such efforts are particularly valued by uninformed buyers as non-local buyers prefer to purchase in the first-hand market rather than in the second-hand market, especially when the problem of information asymmetry is serious.

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“…In the residential literature, some research in this vein is provided byMiller, Sklarz, and Ordway (1988), who examined Japanese investment into Honolulu housing markets, andNeo, Ong, and Tu (2008), who studied residential sales in Singapore over the period1989-1999. …”

mentioning

confidence: 99%

Do ‘foreigners’ pay more? The effects of investor type and nationality on office transaction prices in New York City

Devaney

Scofield

2017

Journal of Property Research

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Are commercial real estate prices in metropolitan New York affected by the type or nationality of the investors involved in a transaction? Previous research has highlighted differences in pricing between in-state and out-of-state investors and between different types of investors, but there are few extant studies that consider the influence of nationality on pricing at a microlevel. Foreign investors might pay more than domestic investors for commercial real estate assets because of a lack of information or experience in the market concerned. However, they might use local partners or brokers to mitigate such problems. To explore these issues, we use data provided by Real Capital Analytics on over 3,000 office transactions in the New York metro area from 2001-2015. We use hedonic regression techniques and propensity score matching to examine whether pricing differs across investor groups after controlling for asset attributes. We find that foreign investors pay more than domestic investors at acquisition, but receive more when selling assets. Tests suggest that it is unmeasured aspects of quality that explain any apparent overpayment for offices in this location, not information issues.

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Buyer Exuberance and Price Premium

Cited by 13 publications

References 38 publications

The Information and Bargaining Roles of Commercial Brokers When Investors Are Uninformed

The Information and Bargaining Roles of Commercial Brokers When Investors Are Uninformed

Information Asymmetry with Heterogeneous Buyers and Sellers in the Housing Market

Do ‘foreigners’ pay more? The effects of investor type and nationality on office transaction prices in New York City

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