IDEAS home Printed from https://ideas.repec.org/p/hfa/wpaper/17-03.html
   My bibliography  Save this paper

Under What Circumstances do First-time Homebuyers Overpay? – An Empirical Analysis Using Mortgage and Appraisal Data

Author

Listed:
  • Jessica Shui

    (Federal Housing Finance Agency)

  • Shriya Murthy

    (Federal Housing Finance Agency)

Abstract

In this paper, we study whether first-time homebuyers overpay for their homes and whether the magnitude of overpayment varies with the diligence of appraisers involved. We present a robust result that: 1) First-time homebuyers sort into cheaper houses. 2) Once observed and unobserved house characteristics are controlled for, they pay a premium compared to their more experienced counter parts. Our analysis additionally suggests that certain appraisals and appraisers might be able to mitigate this overpayment, though the underlying channel remains unclear. This research is among the first to contribute both theoretically and empirically to the existing literature on first-time homebuyers.

Suggested Citation

  • Jessica Shui & Shriya Murthy, 2017. "Under What Circumstances do First-time Homebuyers Overpay? – An Empirical Analysis Using Mortgage and Appraisal Data," FHFA Staff Working Papers 17-03, Federal Housing Finance Agency.
    • Handle: RePEc:hfa:wpaper:17-03
    DOI: 10.1080/10835547.2019.12091518
    as

    Download full text from publisher

    File URL: https://www.fhfa.gov/document/wp1703.pdf
    Download Restriction: no
    File URL: https://www.fhfa.gov/research/papers/wp1703
    Download Restriction: no
    File URL: https://libkey.io/10.1080/10835547.2019.12091518?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Saty Patrabansh, 2015. "The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment," FHFA Staff Working Papers 15-02, Federal Housing Finance Agency.
    2. Stephanie Moulton & Cäzilia Loibl & Anya Samak & J. Michael Collins, 2013. "Borrowing Capacity and Financial Decisions of Low-to-Moderate Income First-Time Homebuyers," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(3), pages 375-403, November.
    3. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    4. Marcos Lins & Luiz Novaes & Luiz Legey, 2005. "Real Estate Appraisal: A Double Perspective Data Envelopment Analysis Approach," Annals of Operations Research, Springer, vol. 138(1), pages 79-96, September.
    5. Val E. Lambson & Grant R. McQueen & Barrett A. Slade, 2004. "Do Out‐of‐State Buyers Pay More for Real Estate? An Examination of Anchoring‐Induced Bias and Search Costs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 32(1), pages 85-126, March.
    6. D.H. Jenkins & O.M. Lewis & N. Almond & S.A. Gronow & J.A. Ware, 1999. "Towards an intelligent residential appraisal model," Journal of Property Research, Taylor & Francis Journals, vol. 16(1), pages 67-90, January.
    7. James Albrecht & Pieter Gautier & Susan Vroman, 2016. "Directed Search in the Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 218-231, January.
    8. Edward A. Baryla, Jr. & Leonard V. Zumpano & Harold W. Elder, 2000. "An Investigation of Buyer Search in the Residential Real Estate Market under Different Market Conditions," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 75-91.
    9. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June.
    10. Munneke, Henry J & Yavas, Abdullah, 2001. "Incentives and Performance in Real Estate Brokerage," The Journal of Real Estate Finance and Economics, Springer, vol. 22(1), pages 5-21, January.
    11. Dean Baker, 2012. "First Time Underwater: The Impact of the First-time Homebuyer Tax Credit," CEPR Reports and Issue Briefs 2012-13, Center for Economic and Policy Research (CEPR).
    12. Barry A. Diskin & Dean H. Gatzlaff, 1994. "An Examination of the Earnings of Real Estate Appraisers," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 507-524.
    13. Edward A. Baryla & Leonard V. Zumpano, 1995. "Buyer Search Duration in the Residential Real Estate Market: The Role of the Real Estate Agent," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 1-14.
    14. Marvin L. Wolverton & Paul Gallimore, 1999. "Client Feedback and the Role of the Appraiser," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 415-432.
    15. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-1292, December.
    16. Heath, Chip & Soll, Jack B, 1996. "Mental Budgeting and Consumer Decisions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 23(1), pages 40-52, June.
    17. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
    18. Paul M. Anglin, 1997. "Determinants of Buyer Search in a Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(4), pages 567-589, December.
    19. Shannon Van Zandt & William M. Rohe, 2011. "The sustainability of low-income homeownership: the incidence of unexpected costs and needed repairs among low-income home buyers," Housing Policy Debate, Taylor & Francis Journals, vol. 21(2), pages 317-341, March.
    20. Yinger, John, 1981. "A Search Model of Real Estate Broker Behavior," American Economic Review, American Economic Association, vol. 71(4), pages 591-605, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jessica Shui & Shriya Murthy, 2018. "Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals," FHFA Staff Working Papers 18-01, Federal Housing Finance Agency.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    2. Vrinda Kadiyali & Jeffrey Prince & Daniel Simon, 2014. "Is Dual Agency in Real Estate a Cause for Concern?," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 164-195, January.
    3. Marcus T. Allen & Justin D. Benefield & Ronald C. Rutherford, 2023. "Co-Listing Strategies: Better Transaction Outcomes?," The Journal of Real Estate Finance and Economics, Springer, vol. 67(3), pages 517-544, October.
    4. Geoffrey Turnbull & Jonathan Dombrow, 2007. "Individual Agents, Firms, and the Real Estate Brokerage Process," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 57-76, July.
    5. Genesove, David & Han, Lu, 2012. "Search and matching in the housing market," Journal of Urban Economics, Elsevier, vol. 72(1), pages 31-45.
    6. David Koch & Gunther Maier, 2015. "The influence of estate agencies’ location and time on Internet," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 35(2), pages 147-171, October.
    7. Jessica Shui & Shriya Murthy, 2018. "Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals," FHFA Staff Working Papers 18-01, Federal Housing Finance Agency.
    8. Lu Han & William C. Strange, 2014. "Bidding Wars for Houses," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 1-32, March.
    9. William G. Hardin III & Ken H. Johnson & Zhonghua Wu, 2009. "Brokerage Intermediation in the Commercial Property Market," Journal of Real Estate Research, American Real Estate Society, vol. 31(4), pages 397-420.
    10. Lingxiao Li & Abdullah Yavas, 2015. "The Impact of a Multiple Listing Service," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(2), pages 471-506, June.
    11. Yang Zhang & Hong Zhang & Michael J. Seiler, 2014. "The Effects of Demand Specification and Search Patience on the Buyer Search Process in China's Resale Housing Market: An Experimental Study," International Real Estate Review, Global Social Science Institute, vol. 17(3), pages 275-299.
    12. Jonathan Wiley & Justin Benefield & Marcus Allen, 2014. "Cyclical Determinants of Brokerage Commission Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 196-219, January.
    13. Marcus T. Allen & Jessica Rutherford & Ronald Rutherford & Abdullah Yavas, 2018. "Impact of Investors in Distressed Housing Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 56(4), pages 622-652, May.
    14. Peng Liu & Jia Xie, 2021. "Optimal Contract Design in Residential Brokerage," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(2), pages 493-530, June.
    15. Stanley McGreal & Alastair Adair & Louise Brown & James R. Webb, 2009. "Pricing and Time on the Market for Residential Properties in a Major U.K. City," Journal of Real Estate Research, American Real Estate Society, vol. 31(2), pages 209-234.
    16. Oded Palmon & Ben J. Sopranzetti, 2017. "On the relationship between the number of a broker’s real estate listings and transaction outcomes," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 65-89, July.
    17. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    18. Yang Zhang & Hong Zhang & Michael J. Seiler, 2016. "The Effects of Time Constraints on Broker Behavior in China¡¦s Resale Housing Market: Theory and Evidence," International Real Estate Review, Global Social Science Institute, vol. 19(3), pages 353-370.
    19. Marcus T. Allen & Justin D. Benefield & Christopher L. Cain & Norman Maynard, 2024. "Distressed Property Sales: Differences and Similarities Across Types of Distress," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 318-353, February.
    20. Chang, Zheng, 2018. "Information Barriers, Housing Searches, and Residential Satisfaction: A Study of Mainland China Students in Hong Kong," International Real Estate Review, Global Social Science Institute, vol. 21(3), pages 343-365.

    More about this item

    Keywords

    first-time homebuyer; overpayment; appraisal; appraiser; renegotiation; repeat-sales approach;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hfa:wpaper:17-03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: William Doerner (email available below). General contact details of provider: https://edirc.repec.org/data/fhfaaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.