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The Value of Mortgage Assumptions: An Empirical Test


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    This study provides an empirical test of the two main techniques for calculating the financing premium for assumption financed sales, cash equivalence adjustment (CEA) and financed-fee valuation adjustment (FFVA). The results indicate that both the CEA and FFVA computational techniques overvalue the premium associated with assumption financing. A variation of the empirical test is considered that differentiates this study from previous studies. This variation allows for a test of the hypothesis that the proportion of the financing premium capitalized into the sales price is a function of the loan-to-price ratio. It is concluded that this hypothesis cannot be rejected.

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    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 5 (1990)
    Issue (Month): 2 ()
    Pages: 247-258

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    Handle: RePEc:jre:issued:v:5:n:2:1990:p:247-258

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323

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    1. Vinod B. Agarwal & Richard A. Philips, 1985. "The Effects of Assumption Financing Across Housing Price Categories," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 48-57.
    2. Terrence M. Clauretie, 1983. "A Note on the Bias in House Price Capitalization Models," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 11(4), pages 521-524.
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    Cited by:
    1. Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 169-195.
    2. Mark T. Spenc & James A. Thorson, 1998. "The Effect of Expertise on the Quality of Appraisal Services," Journal of Real Estate Research, American Real Estate Society, vol. 15(2), pages 205-215.


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