Fire Sales and House Prices: Evidence from Estate Sales due to Sudden Death

Steffen Andersen, Kasper Meisner Nielsen

Research output: Contribution to conferencePaperResearch

Abstract

We exploit a natural experiment in Denmark to investigate when forced sales lead to fire sale discounts. Forced sales result from sudden deaths of house owners in an institutional environment in which beneficiaries are forced to settle the estate, and hence sell the house, within 12 months. We identify 6,329 forced sales by suddenly deceased house owners, and find that forced sales bring in lower prices than do comparable houses as the deadline winds down: We find no discounts for sales long before the deadline, and discounts of 12.5% for sales shortly before the deadline. Market conditions and the urgency of the sale also affect the average discount: Discounts are larger when house prices contract, in thin markets where demand is lower, and when the sale is more likely to be a fire sale because of financial or liquidity constraints. Late fire sales are more likely when the house price is in the loss domain suggesting that disposition effects play a role in explaining discounts. We establish these results using (i) a hedonic pricing model, and (ii) the tax authorities’ yearly assessments of value as benchmark for realized prices. Overall, our results characterize market conditions under which forced
sales lead to fire sale discounts.
We exploit a natural experiment in Denmark to investigate when forced sales lead to fire sale discounts. Forced sales result from sudden deaths of house owners in an institutional environment in which beneficiaries are forced to settle the estate, and hence sell the house, within 12 months. We identify 6,329 forced sales by suddenly deceased house owners, and find that forced sales bring in lower prices than do comparable houses as the deadline winds down: We find no discounts for sales long before the deadline, and discounts of 12.5% for sales shortly before the deadline. Market conditions and the urgency of the sale also affect the average discount: Discounts are larger when house prices contract, in thin markets where demand is lower, and when the sale is more likely to be a fire sale because of financial or liquidity constraints. Late fire sales are more likely when the house price is in the loss domain suggesting that disposition effects play a role in explaining discounts. We establish these results using (i) a hedonic pricing model, and (ii) the tax authorities’ yearly assessments of value as benchmark for realized prices. Overall, our results characterize market conditions under which forced
sales lead to fire sale discounts.

Conference

ConferenceEconomic Seminar Series, April 2013
LocationAarhus University, Fuglesangs Allé 4
CountryDenmark
CityAarhus
Period30/04/201330/04/2013
Internet address

Keywords

    Cite this

    Andersen, S., & Meisner Nielsen, K. (2013). Fire Sales and House Prices: Evidence from Estate Sales due to Sudden Death. Paper presented at Economic Seminar Series, April 2013, Aarhus, Denmark.
    Andersen, Steffen ; Meisner Nielsen, Kasper . / Fire Sales and House Prices : Evidence from Estate Sales due to Sudden Death. Paper presented at Economic Seminar Series, April 2013, Aarhus, Denmark.34 p.
    @conference{154a8254605b49b18114a9733f7f26d2,
    title = "Fire Sales and House Prices: Evidence from Estate Sales due to Sudden Death",
    abstract = "We exploit a natural experiment in Denmark to investigate when forced sales lead to fire sale discounts. Forced sales result from sudden deaths of house owners in an institutional environment in which beneficiaries are forced to settle the estate, and hence sell the house, within 12 months. We identify 6,329 forced sales by suddenly deceased house owners, and find that forced sales bring in lower prices than do comparable houses as the deadline winds down: We find no discounts for sales long before the deadline, and discounts of 12.5{\%} for sales shortly before the deadline. Market conditions and the urgency of the sale also affect the average discount: Discounts are larger when house prices contract, in thin markets where demand is lower, and when the sale is more likely to be a fire sale because of financial or liquidity constraints. Late fire sales are more likely when the house price is in the loss domain suggesting that disposition effects play a role in explaining discounts. We establish these results using (i) a hedonic pricing model, and (ii) the tax authorities’ yearly assessments of value as benchmark for realized prices. Overall, our results characterize market conditions under which forcedsales lead to fire sale discounts.",
    keywords = "Household finance, Fire sales, Financial constraints, Real estate, Sudden death",
    author = "Steffen Andersen and {Meisner Nielsen}, Kasper",
    year = "2013",
    language = "English",
    note = "null ; Conference date: 30-04-2013 Through 30-04-2013",
    url = "http://econ.au.dk/currently/events/event-item/artikel/economics-seminar-series-steffen-andersen-copenhagen-business-school/",

    }

    Andersen, S & Meisner Nielsen, K 2013, 'Fire Sales and House Prices: Evidence from Estate Sales due to Sudden Death' Paper presented at, Aarhus, Denmark, 30/04/2013 - 30/04/2013, .

    Fire Sales and House Prices : Evidence from Estate Sales due to Sudden Death. / Andersen, Steffen; Meisner Nielsen, Kasper .

    2013. Paper presented at Economic Seminar Series, April 2013, Aarhus, Denmark.

    Research output: Contribution to conferencePaperResearch

    TY - CONF

    T1 - Fire Sales and House Prices

    T2 - Evidence from Estate Sales due to Sudden Death

    AU - Andersen,Steffen

    AU - Meisner Nielsen,Kasper

    PY - 2013

    Y1 - 2013

    N2 - We exploit a natural experiment in Denmark to investigate when forced sales lead to fire sale discounts. Forced sales result from sudden deaths of house owners in an institutional environment in which beneficiaries are forced to settle the estate, and hence sell the house, within 12 months. We identify 6,329 forced sales by suddenly deceased house owners, and find that forced sales bring in lower prices than do comparable houses as the deadline winds down: We find no discounts for sales long before the deadline, and discounts of 12.5% for sales shortly before the deadline. Market conditions and the urgency of the sale also affect the average discount: Discounts are larger when house prices contract, in thin markets where demand is lower, and when the sale is more likely to be a fire sale because of financial or liquidity constraints. Late fire sales are more likely when the house price is in the loss domain suggesting that disposition effects play a role in explaining discounts. We establish these results using (i) a hedonic pricing model, and (ii) the tax authorities’ yearly assessments of value as benchmark for realized prices. Overall, our results characterize market conditions under which forcedsales lead to fire sale discounts.

    AB - We exploit a natural experiment in Denmark to investigate when forced sales lead to fire sale discounts. Forced sales result from sudden deaths of house owners in an institutional environment in which beneficiaries are forced to settle the estate, and hence sell the house, within 12 months. We identify 6,329 forced sales by suddenly deceased house owners, and find that forced sales bring in lower prices than do comparable houses as the deadline winds down: We find no discounts for sales long before the deadline, and discounts of 12.5% for sales shortly before the deadline. Market conditions and the urgency of the sale also affect the average discount: Discounts are larger when house prices contract, in thin markets where demand is lower, and when the sale is more likely to be a fire sale because of financial or liquidity constraints. Late fire sales are more likely when the house price is in the loss domain suggesting that disposition effects play a role in explaining discounts. We establish these results using (i) a hedonic pricing model, and (ii) the tax authorities’ yearly assessments of value as benchmark for realized prices. Overall, our results characterize market conditions under which forcedsales lead to fire sale discounts.

    KW - Household finance

    KW - Fire sales

    KW - Financial constraints

    KW - Real estate

    KW - Sudden death

    M3 - Paper

    ER -

    Andersen S, Meisner Nielsen K. Fire Sales and House Prices: Evidence from Estate Sales due to Sudden Death. 2013. Paper presented at Economic Seminar Series, April 2013, Aarhus, Denmark.