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Price Signals and Uncertainty in Commercial Real Estate Transactions

Author

Listed:
  • Matthew Cypher

    (Georgetown University)

  • S. McKay Price

    (Lehigh University)

  • Spenser Robinson

    (Central Michigan University)

  • Michael J. Seiler

    (Raymond A. Mason School of Business)

Abstract

Using a sample of CCIM designees and candidates in an experimental setting, this study examines the impact of broker signaling in commercial real estate transactions. It also explores the effect of certainty of closure in commercial real estate transactions. Findings suggest brokers are able to influence transaction pricing. Moreover, detailed analysis reveals that when a signal is above a reference point implied by previous transactions, the strength of the signal matters; privately communicated signals from reliable sources have significantly greater impact than signals which are made widely available. Additionally, we find an approximately 10% premium in transactions with lower certainty of closure than one with high certainty. The latter result varies by transactional participant type; owner/developers require a larger premium than institutional sellers.

Suggested Citation

  • Matthew Cypher & S. McKay Price & Spenser Robinson & Michael J. Seiler, 2018. "Price Signals and Uncertainty in Commercial Real Estate Transactions," The Journal of Real Estate Finance and Economics, Springer, vol. 57(2), pages 246-263, August.
    • Handle: RePEc:kap:jrefec:v:57:y:2018:i:2:d:10.1007_s11146-017-9617-0
    DOI: 10.1007/s11146-017-9617-0
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    More about this item

    Keywords

    Commercial Real Estate; Broker; Signaling; Uncertainty; Execution Risk;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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