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Do Tax-Deferred Exchanges Impact Purchase Price? Evidence form the Phoenix Apartment Market

Author

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  • Andrew Holmes
  • Barrett A. Slade

Abstract

Many authors have commented on the compliance risk associated with tax-deferred exchanges. However, no published studies explicitly address whether the risks associated with the exchange process impacts the price at which exchanged assets trade. Using a unique data set that separates buy and sell side transactions for non-direct exchanges, this study examines the price impact of tax-deferred exchanges on apartment transactions in the Phoenix, Arizona market. Consistent with the price pressure hypothesis originally developed by Scholes (1972) and Kraus and Stoll (1972), the data show that exchange participants pay an economically significant premium to acquire replacement assets. A conventional hedonic price index is generated to investigate the rational bounds of the exchange premium. While the impact of an exchange is large, the premium is within the rational bounds.

Suggested Citation

  • Andrew Holmes & Barrett A. Slade, 2001. "Do Tax-Deferred Exchanges Impact Purchase Price? Evidence form the Phoenix Apartment Market," ERES eres2001_180, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_180
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    References listed on IDEAS

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    Cited by:

    1. David Ling & Milena Petrova, 2008. "Avoiding Taxes at Any Cost: The Economics of Tax-Deferred Real Estate Exchanges," The Journal of Real Estate Finance and Economics, Springer, vol. 36(4), pages 367-404, May.
    2. S. Akin & Val Lambson & Grant McQueen & Brennan Platt & Barrett Slade & Justin Wood, 2013. "Rushing to Overpay: Modeling and Measuring the REIT Premium," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 506-537, October.
    3. Eli Beracha & William G. Hardin & Hilla Maaria Skiba, 2018. "Real Estate Market Segmentation: Hotels as Exemplar," The Journal of Real Estate Finance and Economics, Springer, vol. 56(2), pages 252-273, February.

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    JEL classification:

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

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