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The Capitalization of Seller Paid Consessions

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Abstract

Using a hedonic pricing model, we analyze the capitalization of total seller paid discount points and closing costs into the price of a house. We hypothesize that sellers are concerned about the sales price net of total seller paid concessions (SPNC), rather than the exact terms of the transaction. Since the SPNC is easily ascertained in the negotiation process, we further hypothesize that total seller paid concessions (TSPC) are fully capitalized into the sales price. To test this hypothesis, sales price is regressed on a set of control variables including TSPC. In this framework, TSPC will be positive and not significantly different from one if concessions are fully capitalized. The empirical results provide support for the capitalization hypothesis. Negotiation strategies and study limitations follow from the empirical results.

Suggested Citation

  • Ken H. Johnson & Randy I . Anderson & James R. Webb, 2000. "The Capitalization of Seller Paid Consessions," Journal of Real Estate Research, American Real Estate Society, vol. 19(3), pages 287-300.
  • Handle: RePEc:jre:issued:v:19:n:3:2000:p:287-300
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    References listed on IDEAS

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    1. Asabere, Paul K & Hoffman, Forrest E, 1997. "Discount Point Concessions and the Value of Homes with Conventional versus Nonconventional Mortgage Financing," The Journal of Real Estate Finance and Economics, Springer, vol. 15(3), pages 261-270, November.
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    Cited by:

    1. repec:kap:jrefec:v:56:y:2018:i:1:d:10.1007_s11146-016-9592-x is not listed on IDEAS
    2. Kenneth Soyeh & Jonathan Wiley & Ken Johnson, 2014. "Do Buyer Incentives Work for Houses during a Real Estate Downturn?," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 380-396, February.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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