Asking prices and sale prices of owner-occupied houses in rural ...

Zeitschrift für Immobilienökonomie Journal of Interdisciplinary Property Research 1/2012
>> Aufsätze PAPers MichAel Dinkel, Björn-MArtin kurzrock
Abstract
Many indicators and indices related to real estate markets are based on either asking prices or sale
prices of properties. This research aims to enlarge the existing body of knowledge in this area by analysing
the empirical relationship between the asking prices and sale prices of owner-occupied residential
properties. Both data sources – asking prices and sale prices – have pros and cons in terms of the four
criteria of real estate market data quality: availability; the extent to which they are up-to-date; accuracy;
and geographical coverage.
Asking prices are usually available at no direct cost from newspapers or brokerage web sites, or are
collected by specialised data providers. They mainly feature very high geographical coverage, due to
their abundance, and are generally available in real time. However, the great disadvantage of asking
prices is insufficient accuracy: the asking price is rarely the same as the agreed sale price. In most cases
this variance must be estimated and proper allowance must be made for it.
Sale prices in real estate markets are generally (though not always: e.g. sales between relatives) at
arm’s length and therefore provide the highest possible accuracy. They are virtually available in real time,
similar to asking prices. Their geographical coverage is more than sufficient since, in most countries,
every sale contract is officially recorded. However, in Germany (unlike other countries) sale prices are
seldom made available, even for academic research purposes.
This work aims to analyse these two data sources jointly and to quantify the divergence (discount) that
applies to asking prices. Significant factors influencing asking prices and sale prices should also be
identified. The main result is a better understanding of asking prices, due to their importance for real
estate market analyses. The research provides unique new insights into the selling behaviour of private
residential property owners. For the first time in Germany, asking price discounts were identified and
analysed from a larger sample of primary data.
The initial data set comprises 1,274 transactions in owner-occupied residential properties in rural areas
of Rhineland-Palatinate (Germany). The study analysed every sale contract (N=6,597) for owner-occupied
houses (not apartments) in this area between 2007 and 2009. In the end, 20% of all sale contracts
(n=1,274) could be matched with asking prices. An OLS regression analysis is applied to identify significant
variables. The regression model is mainly derived from similar US studies.
It was found that, on average, sale prices are on average minimum at least 15.2% (20,605 €) below the
stated listing prices. The skewness of the absolute and percentage asking price discounts reveals that
absolute discounts increase with the total amount of the asking price, whilst the percentage discount is
independent of the total amount. For most properties, the discounts fall within a relatively small range,
although the total range is very large. The result is a very high kurtosis value for absolute asking price
discounts. The pattern of the percentage asking price discounts is similar, but less distinctive.
Another factor noted is that 10% of the sellers were forced to reduce their asking prices by more than
33.3% (on average 47,750 €) before a transaction could be realized. This indicates that many vendors
overestimate the value of their own properties, especially in illiquid real estate markets. In particular,
vendors of properties with high asking prices (over 300,000 €) often had to accept substantial discounts
in both absolute and relative terms. Several other studies from the USA or Canada have come to similar
conclusions. This indicates that such properties are particularly hard to sell in the investigated area.
The OLS regressions included 31 variables, for which the secondary literature suggested would have a
significant impact on asking price discounts. It is shown that no linear relationship exists and that asking
price discounts cannot be forecast by applying the given models that relate to previous research in nonrural
areas of other countries.
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