A below market assumable mortgage may imply a discount in the financing costs of prospective property buyers. Sellers may capitalize any discount value into their asking price for the property. Residential properties sold with below market assumption financing may therefore include a capitalized discount in their selling price. This study empirically tests the hypothesis that below market assumption financed residential properties include a capitalized discount in their observed selling price and obtains both a parametric and nonparametric estimate of the average discount capitalization rate. The hypothesis is tested on a large-scale sample of residential condominium sales that occurred in Vancouver over the 13 year period from 1974 to 1986. Both the hedonic pricing and matched pairs methodologies are employed to control for non-financial differences among the sampled transactions. The theoretical value of assumption financing discounts is measured using a modified Cash Equivalent Adjustment model. This study concludes that Vancouver condominiums sold with discount assumption financing do, on average, include a capitalized discount in their selling price. The hedonic price estimate of the average discount capitalization rate is approximately 75 percent of the modified Cash Equivalent discount value; the matched pairs estimate is approximately 50 percent of the modified Cash Equivalent discount value. The average discount capitalization rate appears to be stable across periods of high and moderate inflation. / Business, Sauder School of / Graduate
| Identifer | oai:union.ndltd.org:UBC/oai:circle.library.ubc.ca:2429/29679 |
| Date | January 1991 |
| Creators | Hobden, David W. |
| Publisher | University of British Columbia |
| Source Sets | University of British Columbia |
| Language | English |
| Detected Language | English |
| Type | Text, Thesis/Dissertation |
| Rights | For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use. |
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