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Do Real Estate Contingency Clauses Affect Selling Price and Time-on-the-Market?

Author

Listed:
  • Bruce L. Gordon
  • Michael J. Seiler
  • Ralph Siebert
  • Daniel T. Winkler

Abstract

Real estate contracts often contain a wide variety of contingency clauses. These third-party approvals are often outside the seller’s control and can lengthen the-time-on-the-market (TOM) and reduce the surety of close. To compensate for these undesirable attributes, buyers typically offer higher purchase prices. This study examines the factors affecting contract contingencies and the effect of contract contingencies on TOM and selling price. Using transactions from Miami-Dade County in south Florida, we find that the presence of contingency clauses is significantly related to market conditions, TOM, list price premiums, distressed transactions, brokerage characteristics, home occupancy status, size, and age. Contingency clauses have differential effects on price premia that range from -3.7% to +2.2%. However, when considering TOM, contingency clauses have significant price premia ranging from -3.3% to +2.4%.

Suggested Citation

  • Bruce L. Gordon & Michael J. Seiler & Ralph Siebert & Daniel T. Winkler, 2022. "Do Real Estate Contingency Clauses Affect Selling Price and Time-on-the-Market?," CESifo Working Paper Series 9947, CESifo.
    • Handle: RePEc:ces:ceswps:_9947
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    References listed on IDEAS

    as
    1. Daniel T. Winkler & Bruce L. Gordon, 2015. "Seller-Paid Concessions from 2004-2012: Implications for House Selling Price and Days on the Market," Journal of Real Estate Research, American Real Estate Society, vol. 37(4), pages 537-562.
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    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. Anglin, Paul M & Rutherford, Ronald & Springer, Thomas M, 2003. "The Trade-Off Between the Selling Price of Residential Properties and Time-on-the-Market: The Impact of Price Setting," The Journal of Real Estate Finance and Economics, Springer, vol. 26(1), pages 95-111, January.
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    6. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
    7. Thomas Miceli & Katherine A. Pancak & C. F. Sirmans, 2000. "Restructuring Agency Relationships in the Real Estate Brokerage Industry: An Economic Analysis," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 31-47.
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    More about this item

    Keywords

    contingency clauses; price premia; real estate contracts; time-on-the-market; selling price;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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