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The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study Using Propensity Scores

  • Anupam NandaEmail author
  • Stephen L. Ross
Article

Abstract

We examine the impact of seller’s Property Condition Disclosure Laws on residential real estate values. A disclosure law may address the information asymmetry in housing transactions shifting risk from buyers and brokers to the sellers and raising housing prices as a result. We combine propensity score techniques from the treatment effects literature with a traditional event study approach. We assemble a unique set of economic and institutional attributes for a quarterly panel of 291 US Metropolitan Statistical Areas (MSAs) across 50 US States spanning 21 years from 1984 to 2004. The study finds that the average sales price of houses in a metropolitan area increases by an additional 3 to 4% over a 4 year period if the state adopts a Property Condition Disclosure Law, which is consistent with approximately a 19 basis point or 6.4% reduction in the risk premium associated with purchasing owner-occupied housing. When we compare the results from parametric and semi-parametric (propensity score) event analyses, we find that the semi-parametric analysis generates moderately larger estimated effects of the law on housing prices.

Keywords

Property condition disclosure Housing price index Propensity score matching Event study 

Notes

Acknowledgements

The authors are grateful to John Clapp, Dennis Heffley, Morris Davis, James Davis, Katherine Pancak, the editor, an anonymous referee, and seminar participants at the University of Connecticut Economics Brownbag Seminar Series and 2006 AREUEA Doctoral Session in Boston for valuable comments. We would also like to thank Tim Storey (National Conference of State Legislatures) and Daniel Conti (Bureau of Labor Statistics) for assistance with data. All remaining errors are ours.

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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Thane (W)India
  2. 2.Department of EconomicsUniversity of ConnecticutStorrsUSA

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