Historically, research shows that out-of-town buyers of real estate are informationally disadvantaged and therefore pay higher prices compared to in-town buyers. However, with the recent advent of online housing platforms, a plethora of information about the housing market is provided for free. The purpose of this paper is to examine whether out-of-town buyers do in fact pay a premium and why, and whether this premium has decreased because of better information availability.
A hedonic regression model over a ten-year window (2005, 2015) is developed to analyze condominium transactions in Miami-Dade County. The results are validated by various robustness checks and the propensity score matching algorithm to identify a comparable control sample for 2015 in terms of relevant housing characteristics.
The results support the hypothesis that out-of-town buyers pay higher prices for real estate, compared to their local counterparts, and that both search costs and anchoring cause a premium in both years, whereas wealth only plays a significant role in 2005. The premium because of search costs, and therefore, information availability has decreased slightly over time.
This is the first out-of-town paper that compares two points in time versus a single cross-section analysis. Besides the premium caused by information asymmetry/search costs measured by distance and the anchoring effect, the regression model is extended by the wealth effect.
