Selling price, financing premiums, and days on the market

Abstract

Home buyers face the task of trading off selling price and the time required to sell a property. One factor that may affect this decision is the presence of financing premiums. The effects of financing premiums on the time a single-family home remains on the market is examined in this paper. The question is to what extent home sellers are willing to compromise on financing premiums and make concessions to buyers in order to sell their properties more quickly. The study uses a sample of single-family residential homes sold with assumption financing and new conventional financing. The sample covers segments of time when interest rates were relatively low and stable (1975–1976) and when rates were much higher on average and more volatile (1980). The results show that financing premiums were present in selling prices of assumption-financed home sales during the 1975–1976 period and that sellers were able to capture a premium and maintain the same average time on the market as properties with other types of financing. During a period of unfavorable market conditions, such as 1980, the results indicate that home sellers with assumption financing conceded or negotiated away any premium in order to significantly decrease the number of days their properties stayed on the market for sale.