Do Out‐of‐State Buyers Pay More for Real Estate? An Examination of Anchoring‐Induced Bias and Search Costs

Val E. Lambson · Grant McQueen · Barrett A. Slade

170 citations0/0 files storedReal Estate Economics

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Housing Market and Economics Financial Markets and Investment Strategies Decision-Making and Behavioral Economics

Abstract

We explore the questions of whether and why out‐of‐state buyers pay more for real estate than their in‐state counterparts. Theoretically, we develop a model capable of explaining a premium if out‐of‐state buyers have high search costs, upwardly biased beliefs about prices or an unusually short time horizon to purchase. Empirically, we find that out‐of‐state buyers pay a statistically significant and economically meaningful premium for apartment complexes in the Phoenix area. We also find some evidence consistent with the premium being driven by high search costs, biased beliefs (anchoring) and haste associated with out‐of‐state buyers.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk 1974Judgment under Uncertainty: Heuristics and Biases 1985Mental Accounting and Consumer Choice 2008Mental Accounting and Consumer Choice 1999Home Bias at Home: Local Equity Preference in Domestic Portfolios 2001The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior 1978Judgment under Uncertainty: Heuristics and Biases

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