Equity and Time to Sale in the Real Estate Market Equity and Time to Sale in the Real Estate Market

By David Genesove and Christopher J. Mayer

Revised article published in American Economic Review 87, no. 3 (June 1997): 255-269.

Estimates from the Boston condominium market show that owners with high loan-to-value ratios take longer to sell their properties than owners with low loan-to-value ratios. When sold, properties with high loan-to-value ratios receive a higher price than units with less debt. Both of these results are consistent with a search model in which owners "constrained" by large amounts of debt set a higher reservation price than "unconstrained" owners, accepting a lower probability of sale in exchange for a higher final sales price, and thus lend credibility to theoretical models that establish a link between sales volume and prices through changes in the equity of existing homeowners.