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

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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.
Original languageEnglish
Publication date2013
Number of pages34
Publication statusPublished - 2013
EventEconomic Seminar Series, April 2013 - Aarhus University, Fuglesangs Allé 4, Aarhus, Denmark
Duration: 30 Apr 201330 Apr 2013


ConferenceEconomic Seminar Series, April 2013
LocationAarhus University, Fuglesangs Allé 4
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