Capitalization of Above Market Financing - or, A Tale of 2 Condos
AbstractPrices and characteristics were collected for two similar, adjacent, buildings. One building, a co-op, has a master mortgage with a prepayment lock-out, while the other building, a condo, has no master mortgage. Thus, the buildings provide a natural experiment to isolate the capitalization of financing terms. With no need to control for neighborhood or structure type differences, and no possibility for differences in mortgage terms to be systematically varied by a seller of new units, the research provides the cleanest estimate to date of the impact of financing terms on sales price. Prices for units in the co-op are found to fluctuate with the value of the prepayment lockout. Unlike most previous research, which relied on the Cash Equivalence method of valuing mortgage terms, the value of the prepayment lockout is estimated, using a stochastic simulation, as a function of the level of interest rates, rate volatility, and the time remaining on the lockout provision. This research finds a result different from the existing literature, as the value of the lockout seems to be overcapitalized in the price of the co-op units. Additionally, co- op status is found to reduce the value of apartments by about 9% relative to condo status.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Urban/Regional with number 9412001.
Length: 12 pages
Date of creation: 22 Dec 1994
Date of revision: 23 Dec 1994
Note: 12 ASCII pages followed by 3 zipped encapsulated postscript graph files, both uuencoded.
Contact details of provider:
Web page: http://188.8.131.52
Find related papers by JEL classification:
- R - Urban, Rural, Regional, Real Estate, and Transportation Economics
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Blomquist, Glenn & Worley, Lawrence, 1981. "Hedonic prices, demands for urban housing amenities, and benefit estimates," Journal of Urban Economics, Elsevier, vol. 9(2), pages 212-221, March.
- Wai K. Leung & C. F. Sirmans, 1990. "A Lattice Approach to Pricing Fixed-Rate Mortgages with Default and Prepayment Options," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(1), pages 91-104.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.