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The Value of Mortgage Assumptions: An Empirical Test

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Abstract

This study provides an empirical test of the two main techniques for calculating the financing premium for assumption financed sales, cash equivalence adjustment (CEA) and financed-fee valuation adjustment (FFVA). The results indicate that both the CEA and FFVA computational techniques overvalue the premium associated with assumption financing. A variation of the empirical test is considered that differentiates this study from previous studies. This variation allows for a test of the hypothesis that the proportion of the financing premium capitalized into the sales price is a function of the loan-to-price ratio. It is concluded that this hypothesis cannot be rejected.

Suggested Citation

  • Mark A. Sunderman & Roger E. Cannaday & Peter F. Colwell, 1990. "The Value of Mortgage Assumptions: An Empirical Test," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 247-258.
    • Handle: RePEc:jre:issued:v:5:n:2:1990:p:247-258
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    References listed on IDEAS

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    1. Vinod B. Agarwal & Richard A. Philips, 1985. "The Effects of Assumption Financing Across Housing Price Categories," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(1), pages 48-57, March.
    2. Terrence M. Clauretie, 1983. "A Note on the Bias in House Price Capitalization Models," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 11(4), pages 521-524, December.
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    Cited by:

    1. Michael LaCour-Little & Zhenguo Lin & Wei Yu, 2020. "Assumable Financing Redux: A New Challenge for Appraisal?," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 3-39, February.
    2. Mark T. Spenc & James A. Thorson, 1998. "The Effect of Expertise on the Quality of Appraisal Services," Journal of Real Estate Research, American Real Estate Society, vol. 15(2), pages 205-215.
    3. Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Global Social Science Institute, vol. 5(1), pages 169-195.

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    JEL classification:

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

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