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Some Remarks on Real Estate Pricing

Author

Listed:
  • Cocker Liu

    (Cornell University)

  • Adam Nowak

    (West Virginia University, Department of Economics)

  • Patrick Smith

    (San Diego State University)

Abstract

This paper develops a framework for addressing the omitted variable bias that plagues most real estate research. We incorporate qualitative information from text to control for property attributes that are generally unobserved. The textual information is entered by real estate agents for every property sold on a Multiple Listing Service (MLS). The agents, who arguably have the most local market and property specific knowledge, use the unstructured text to highlight important information that is not clearly conveyed in other areas of the listing. Although the framework can be applied universally in real estate research, we demonstrate its effectiveness in the estimation of agent-owned sales premiums. Similar to previous studies, we find agent-owned premiums between 2% to 6% when no textual information is included. When we include the textual information the agent-owned premiums dissipate. The results suggest that the market distortions reported in Rutherford et al. [2005] and Levitt and Syverson [2008] do not exist.

Suggested Citation

  • Cocker Liu & Adam Nowak & Patrick Smith, 2017. "Some Remarks on Real Estate Pricing," Working Papers 17-20, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:17-20
    as

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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1232&context=econ_working-papers
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    References listed on IDEAS

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    More about this item

    Keywords

    Omitted variable bias; textual analysis; agent-owned; agency problem;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • 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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