Cash and Distressed House Sales Price Discounts: Dual Sample Selection Spatial Interdependence Approaches

Beginning with a hedonic price model, and then progressing to a method accounting for dual sample selectivity biases and spatial interdependence; we document (and correct for) these potential confounding biases, and produce price counterfactuals for (1) all-cash financed property, (2) distressed property, and (3) all-cash and distressed property transactions. Results provide evidence of self- selection biases with all-cash purchasers, distressed properties, and distressed and all-cash properties. Significant disparities in observed cash (−13% and −6.5%) and distressed property discounts (−1% and −6%) are documented in pre-and post-recessionary environments, Further, cash discounts are consistent for non-distressed transactions (−11%) during both periods; however cash discounts associated with non-distressed transactions are significantly reduced post-recession (−23.3% to −3.7%. This attenuation is attributed to a significant increase in the relative frequency of cash purchased distressed properties post-recession, i.e., larger percentage of cash buyers. Sub-sample counterfactual tests confirm prior results, and expand our understanding of all-cash and distressed discount determinants. These results provide insight into observed time variant all-cash, and distressed property discount affect sizes.