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Homebuyer Purchase Decisions: Are They Anchoring to Appraisal Values or Market Prices?

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  • Ka-Shing Cheung

    (Department of Property, The University of Auckland, 12 Grafton Road, Auckland 1010, New Zealand)

  • Chung-Yim Yiu

    (Department of Property, The University of Auckland, 12 Grafton Road, Auckland 1010, New Zealand)

  • Yihan Guan

    (Department of Property, The University of Auckland, 12 Grafton Road, Auckland 1010, New Zealand)

Abstract

Price discovery is an important research topic in real estate due to the heterogeneous nature of housing attributes and relatively thin trading activities compared to other assets. In Commonwealth countries, including New Zealand, governments usually conduct periodic appraisals for the purpose of collecting rates and levies. Such official appraisal values of properties, also known as capital values ( CVs ), are considered a price anchor for market participants in their negotiation processes. Real estate agents often use these appraisal values to advertise their listings and negotiate transaction prices. In this study, we aim to make an initial attempt to study the influence of CV on market prices using Granger causality tests and a hedonic pricing model. To test the lead-lag relationships, three million housing transactions from 1990 to 2020 in New Zealand are used to construct the capital values ( CVs ) and transacted prices ( TPs ) indices in both primary and secondary housing markets. The Granger causality test suggests that the indices of TPs and CVs have a bi-directional lead-lag relationship in the secondary housing market, whereas the relationship does not follow in the primary market where the information on CVs is unavailable. The results imply the existence of a CV anchoring effect. Such anchoring effects are also contingent on the timeliness of price anchors, which is consistent with the availability heuristic from behavioural economics.

Suggested Citation

  • Ka-Shing Cheung & Chung-Yim Yiu & Yihan Guan, 2022. "Homebuyer Purchase Decisions: Are They Anchoring to Appraisal Values or Market Prices?," JRFM, MDPI, vol. 15(4), pages 1-13, March.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:4:p:159-:d:784698
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    References listed on IDEAS

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    Cited by:

    1. Akshita Singh & Shailendra Kumar & Utkarsh Goel & Amar Johri, 2023. "Behavioural biases in real estate investment: a literature review and future research agenda," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.

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