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The Role of Transaction Costs in Impeding Market Exchange in Real Estate

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  • Xun Bian
  • Bennie D. Waller
  • Scott A. Wentland

Abstract

We examine the role transaction costs play, particularly the costs related to search and bargaining, in impeding or delaying real estate market transactions. In a theoretical model, we show that agents' incentives are influenced by transaction costs in a way that will increase a home's marketing duration and decrease the probability a home will sell. Exploiting a decade of transactions from Virginia, we use a variety of empirical modeling techniques to estimate the effect of transaction costs on a property's time on the market (TOM) and its probability of sale. We find that factors associated with high search and bargaining costs increase a home's TOM and reduce the probability that it will sell.

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  • Xun Bian & Bennie D. Waller & Scott A. Wentland, 2016. "The Role of Transaction Costs in Impeding Market Exchange in Real Estate," Journal of Housing Research, Taylor & Francis Journals, vol. 25(2), pages 115-135, January.
    • Handle: RePEc:taf:rjrhxx:v:25:y:2016:i:2:p:115-135
    DOI: 10.1080/10835547.2016.12092115
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