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Do Out‐of‐State Buyers Pay More for Real Estate? An Examination of Anchoring‐Induced Bias and Search Costs
Author(s) -
Lambson Val E.,
McQueen Grant R.,
Slade Barrett A.
Publication year - 2004
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1080-8620.2004.00085.x
Subject(s) - anchoring , real estate , economics , apartment , state (computer science) , microeconomics , willingness to pay , search cost , financial economics , finance , psychology , computer science , social psychology , civil engineering , algorithm , engineering
We explore the questions of whether and why out‐of‐state buyers pay more for real estate than their in‐state counterparts. Theoretically, we develop a model capable of explaining a premium if out‐of‐state buyers have high search costs, upwardly biased beliefs about prices or an unusually short time horizon to purchase. Empirically, we find that out‐of‐state buyers pay a statistically significant and economically meaningful premium for apartment complexes in the Phoenix area. We also find some evidence consistent with the premium being driven by high search costs, biased beliefs (anchoring) and haste associated with out‐of‐state buyers.