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

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

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Article ID: iaor2017321
Volume: 63
Issue: 1
Start Page Number: 201
End Page Number: 212
Publication Date: Jan 2017
Journal: Management Science
Authors: ,
Keywords: financial, investment, behaviour, marketing
Abstract:

This study investigates when forced sales of real estate turn into fire sales by using a natural experiment that allows us to separate supply and demand effects: Forced sales result from sudden death of house owners and are thus unrelated to current market conditions. We find that forced sales result in fire sale discounts. Discounts increase when the sale is urgent, market conditions are poor, and the seller is financially constrained. Overall, our study identifies when forced sales lead to fire sale discounts, and highlights that fire sales occur even in the absence of temporary demand shocks. This paper was accepted by Amit Seru, finance.

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