The Valuation of Houses in an Uncertain World With Substantial Transaction Costs
- Topics:
- Real Estate Services,
- Regulations
- Tags:
- Finance,
- Investment,
- Transaction Cost,
- Valuation
- Source:
- Pomona College
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Overview: This paper presents a dynamic model of residential real estate valuation that takes into account the uncertain time paths of rents and prices and the substantial transaction costs. By temporarily postponing decisions, potential buyers and sellers obtain additional information about future rents and prices and may avoid transactions that are costly to reverse. One implication is that waiting to transact maintains a "flexibility" option that may be quite valuable. Another implication is that the combination of substantial uncertainty and large transaction costs can create a large wedge between a household's reservation prices for buying and selling.
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Format: PDF | Size: 173KB | Date: Jun 2004 | Pages: 24
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