Information transparency and pricing strategy in the Scottish housing market- an evaluation of the Home Report scheme

Abstract

The Scottish housing market has some unique characteristics. The dominating selling mechanism is the “offers over” system, where the property on the market is listed as “price over” a certain amount. When there is more than one potential buyer, the seller tends to set a “closing date” at which, offers from all the potential buyers are submitted in a form of first price sealed bid auction, normally the highest offer will be accepted. This selling mechanism has been very popular among sellers, and is believed to keep the market buoyant to a certain extent. However, this unique system has also been criticised as a “corruptible system”, mainly because it has left estate agents open to accusations of setting artificially low asking prices to create competition, leading people who cannot afford the property paying for surveys. Since In December 2008, the Scottish government introduced a new regulation – the Home Report. Sellers are required to provide information on the condition, valuation, energy efficiency and utility services when list properties in the market, and Home Report can be accessed by potential buyers free of charge. One of the aims of the scheme is to address the problems created by the practice of setting artificially low asking price. Five years since the introduction of Home Report, the Scottish government carried out consultation on the Home Report and findings were published in 2014. While the government’s consultation results are based on qualitative data, this paper aims to provide some quantitative evidence on the effect of Home Report on seller’s pricing strategy. After allowing control for market conditions, dwelling qualities and locations, the paper tests whether there is a significant difference in price setting in Northeast Scotland. This paper uses data from Aberdeen Solicitors’ Property Centre from 1998 to 2013. Results from the hedonic models suggest that sellers set price using evidence of recently transacted properties in nearby locations, and since the introduction of the Home Report, this spatial autocorrelation is more pronounced. The results also show that the introduction of home Report statistically reduces the deviation between actual asking price and estimated asking price, which is used as a proxy to the valuation. These results suggest that sellers’ pricing strategy has fundamentally changed since the introduction of the Home Report. The scheme appears to be effective in addressing the problems created by the practice of setting artificially low asking price.