Leveling the playing field: out-of-town buyer premiums in US housing markets over time

Abstract

Purpose

Historically, research shows that out-of-town buyers of real estate are informationally disadvantaged and therefore pay higher prices compared to in-town buyers. However, with the recent advent of online housing platforms, a plethora of information about the housing market is provided for free. The purpose of this paper is to examine whether out-of-town buyers do in fact pay a premium and why, and whether this premium has decreased because of better information availability.

Design/methodology/approach

A hedonic regression model over a ten-year window (2005, 2015) is developed to analyze condominium transactions in Miami-Dade County. The results are validated by various robustness checks and the propensity score matching algorithm to identify a comparable control sample for 2015 in terms of relevant housing characteristics.

Findings

The results support the hypothesis that out-of-town buyers pay higher prices for real estate, compared to their local counterparts, and that both search costs and anchoring cause a premium in both years, whereas wealth only plays a significant role in 2005. The premium because of search costs, and therefore, information availability has decreased slightly over time.

Originality/value

This is the first out-of-town paper that compares two points in time versus a single cross-section analysis. Besides the premium caused by information asymmetry/search costs measured by distance and the anchoring effect, the regression model is extended by the wealth effect.

Citation

Kandlbinder, K., Miller, N.G. and Sklarz, M. (2020), "Leveling the playing field: out-of-town buyer premiums in US housing markets over time", International Journal of Housing Markets and Analysis, Vol. 12 No. 3, pp. 377-404. https://doi.org/10.1108/IJHMA-02-2018-0017