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The Capitalization of Seller Paid Consessions

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.

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

Volume (Year): 19 (2000)
Issue (Month): 3 ()
Pages: 287-300

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Handle: RePEc:jre:issued:v:19:n:3:2000:p:287-300
Contact details of provider: 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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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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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 261-70, November.
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