Senior citizen's bargaining power in residential real estate markets

Abstract

Purpose – Researchers have previously examined, with mixed results, whether experience in the single-family house market enhances a buyer's bargaining power by comparing prices paid by relatively young first-time buyers and experienced buyers. The present study aims to extend this basic line of inquiry, but the focus here is on both buyers and sellers at the other end of the age spectrum as the authors investigate the bargaining power of senior citizens (age 65 or older) in the single-family house market. Design/methodology/approach – Hedonic regression is used to analyze approximately 6,200 transactions that occurred in Montgomery County, Ohio during the years 2007 through 2009. Findings – No difference is discovered between prices paid for a single-family house by senior citizens and other buyers in the sample. However, senior citizens in this study sold property for 5.9 percent less than other sellers, ceteris paribus, suggesting that when they sold their homes, other factors put seniors at a bargaining power disadvantage. Research limitations/implications – Data limitations prevent the authors from specifying the precise reasons underlying the results concerning senior house sellers, but numerous possibilities are presented. Testing whether the results apply in other local housing markets would be a valuable extension of this research, as would identification of the factors associate with any bargaining power imbalance. Practical implications – The economic principle of substitution suggests that assets that provide identical utility should command identical prices, but for heterogeneous goods the relative bargaining power of the principals may be important in the price formation process. The present study offers interesting results that in the case of senior buyers support the law of one price, but in the case of senior sellers, bargaining power differences dominate. Originality/value – This is the first study to investigate bargaining power in residential real estate markets by comparing transaction prices involving senior citizens and other buyers and sellers.