Why Do Vacant Houses Sell for Less: Holding Costs, Bargaining Power or Stigma?
Version of Record online: 1 DEC 2010
© 2010 American Real Estate and Urban Economics Association
Real Estate Economics
Volume 39, Issue 1, pages 19–43, Spring 2011
How to Cite
Turnbull, G. K. and Zahirovic-Herbert, V. (2011), Why Do Vacant Houses Sell for Less: Holding Costs, Bargaining Power or Stigma?. Real Estate Economics, 39: 19–43. doi: 10.1111/j.1540-6229.2010.00285.x
- Issue online: 27 JAN 2011
- Version of Record online: 1 DEC 2010
This article introduces Nash bargaining into a search model to identify various channels through which vacancy affects selling price and liquidity in the resale market for houses. The model shows the various vacancy effects in the form of greater seller holding cost, lower seller bargaining power and unobserved negative attributes or stigma. We use a 20-year data series on house transactions to test for these effects in a simultaneous model of price and liquidity, using the long data series to allow for variation across market phases. The robust vacancy effects on price and liquidity across all market phases primarily reflect greater seller holding cost and diminished bargaining power. Repeatedly, vacant houses also exhibit significant stigma effects in the rising market but not in stable or declining market phases. At the same time, vacant houses enjoy stronger shopping externality effects from surrounding houses for sale than do their occupied counterparts.