IDEAS home Printed from https://ideas.repec.org/p/arz/wpaper/eres2008_210.html
   My bibliography  Save this paper

Real Estate Illiquidity - Is It Bad Or Is It Good?

Author

Listed:
  • Jaroslaw Morawski

Abstract

Poor liquidity is often considered to be one of the main drawbacks of direct real estate investments. In the following paper I argue that it does not necessarily need to be so. A search model is used to study the dynamics of the sale process for a property investment. An investor willing to sell an illiquid property is assumed to review randomly arriving purchase offers and to decide about accepting or rejecting them. The outcome of the liquidation is a function of the applied search strategy, which is defined in terms of a reservation price. By optimizing the strategy, a well informed investor should be able to achieve expected sale receipts that are higher than the average valuation of the property among market participants. This is equivalent to selling above the market price that would result if the property was perfectly liquid. There is, however, a trade-off between higher expected sale proceeds and the uncertainty about achieving them. Thus, illiqu idity might be advantageous for some investors possessing superior information about the current market situation and ready to accept (liquidity) risk.

Suggested Citation

  • Jaroslaw Morawski, 2008. "Real Estate Illiquidity - Is It Bad Or Is It Good?," ERES eres2008_210, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2008_210
    as

    Download full text from publisher

    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2008-210
    Download Restriction: no
    ---><---

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arz:wpaper:eres2008_210. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Architexturez Imprints (email available below). General contact details of provider: https://edirc.repec.org/data/eressea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.