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Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market

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Author Info
John P. Harding
John R. Knight
C.F. Sirmans

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Abstract

Bargaining is common in markets for heterogeneous goods and differences in bargaining power between buyer and seller affect the negotiated transaction price. Previous research has found systematic evidence in the housing markets that weak buyers pay higher prices and weak sellers receive lower prices for their homes. Earlier work has modeled the bargaining effect as a parallel shift in the hedonic function, implicitly assuming that attribute shadow prices were unaffected by the bargaining process. In this paper, we use a sample of home sales where the seller's bargaining power is weakened by the fact that the home is vacant at the time of sale to test whether the effect of bargaining is best captured by a shift in the hedonic constant or whether the attribute shadow prices vary as well. The question is significant for property valuation where estimation of the marginal value of an attribute is commonly used to adjust comparable sales data. We find strong confirmation that bargaining power influences the negotiated price. We also find evidence that bargaining power alters attribute prices, although we do not find a consistent pattern across markets. Copyright 2003 by the American Real Estate and Urban Economics Association

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1046/j.1080-8620.2003.00078.x
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Publisher Info
Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 31 (2003)
Issue (Month): 4 (December)
Pages: 601-622
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Handle: RePEc:bla:reesec:v:31:y:2003:i:4:p:601-622

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  1. Terrence Clauretie & Paul Thistle, 2007. "The Effect of Time-on-Market and Location on Search Costs and Anchoring: The Case of Single-Family Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 35(2), pages 181-196, August. [Downloadable!] (restricted)
  2. Abdul – Rasheed Amidu & Alirat Olayinka Agboola, 2009. "Empirical Evidence Of The Influences On First-Price Bid Auction Premiums," International Real Estate Review, Asian Real Estate Society, vol. 12(2), pages 157-170. [Downloadable!]
  3. David Ling & Milena Petrova, 2008. "Avoiding Taxes at Any Cost: The Economics of Tax-Deferred Real Estate Exchanges," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 367-404, May. [Downloadable!] (restricted)
  4. Cotteleer, Geerte & Gardebroek, Cornelis, 2006. "Bargaining and market power in a GIS-based hedonic pricing model of the agricultural land market," 2006 Annual meeting, July 23-26, Long Beach, CA 21255, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  5. Peter Colwell & Henry Munneke, 2006. "Bargaining Strength and Property Class in Office Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 33(3), pages 197-213, November. [Downloadable!] (restricted)
  6. Steven Bourassa & Donald Haurin & Jessica Haurin & Martin Hoesli & Jian Sun, 2007. "House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics," Working Papers 07-03, Ohio State University, Department of Economics. [Downloadable!]
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