Subsecretarías de la Secom

3.3.2.1 Hypothesis 2: Distressed Sale Associated with Foreclosure

Question 2: Is residential property that previously faced a foreclosure and sold later at a discount?

The null hypothesis is as follows: holding all else constant, there is no difference between the sale price of a home that previously faced foreclosure and the sale price of typical home. The null hypothesis is denoted as H20: β Distressed Sale Associated with Foreclosure =

β Typical Sale; the alternative hypothesis is denoted as H2A: β Distressed Sale Associated with Foreclosure

< β Typical Sale. It is expected that there is a difference, and the expected sign will be

family home versus condo) and different housing cycles (a housing boom year versus a housing bust year).

The impacts of direct foreclosure effects are likely to differ according to the condition of the local housing market. In hot markets, market demand is more likely to absorb foreclosed properties or short sales. In doing so, foreclosed properties or foreclosure-scheduled properties are less likely to sell at a discount. However, distressed homes associated with a foreclosure status are likely to remain in inventories or later lay in a vacant and abandoned condition for long periods in a sluggish housing market. Thus, distressed properties are also less likely to resell rapidly through conventional channels without big discounts in a bad market condition.

Existing research on condo (Shilling, Benjamin, and Sirmans, 1990), single family home (Carroll, Clauretie, and Neill, 1997; Clauretie and Danenshvary, 2009; Forgey, Rutherford, and VanBurskirk, 1994; Pennington-Cross, 2006), and apartments (Hardin and Wolverton, 1996) have all confirmed a foreclosure discount in a specific housing market condition. All except two studies found a significant 20%s discount for foreclosed property. One case (Sumell, 2009) was at about a 50%s discount for REO property in Cuyahoga County. Recent results (Clauretie and Danenshvary, 2009) indicated that the direct discount caused by foreclosure was 7.5%, when corrected for spatial autocorrelation and accounting for the endogeneity of marketing time. The estimate of foreclosure discount reported in this study was about one-third of previous findings (22% - 28%).

3.3.2.2 Hypotheses 3 and 4: Renter Occupancy

Question 3: Does a renter occupied home have a discount compared to an owner occupied home when sold?

The third null hypothesis is as follows: holding all else constant, there is no difference between the sale price of renter occupied home and the sale price of owner occupied home. The null hypothesis is denoted as H30: β Renter Occupied Home = β Owner Occupied Home;the alternative hypothesis is denoted as H3A: β Renter Occupied Home < β Owner Occupied Home.

It is expected that there is a difference, and the expected sign will be negative, thus rejecting the null. It will be tested by using different housing types (single family home versus condo) and different housing cycles (a housing boom year versus a housing bust year).

The fourth null hypothesis is as follows: holding all else constant, there is no difference between the sale price of a renter occupied home that previously faced a foreclosure and the sale price of an owner occupied home that previously faced a foreclosures. The null hypothesis is denoted as H40: β Foreclosure*Renter Occupied Home = β

Foreclosure *Owner Occupied Home; the alternative hypothesis is denoted as H4A: β Foreclosure*Renter

Occupied Home < β Foreclosure*Owner Occupied Home. It is expected that there is a difference, and the

expected sign will be negative, thus rejecting the null. It will be tested by using different housing types (single family home versus condo) and housing cycles (a housing boom year versus a housing bust year).

Homeowners are likely to be more involved in local organizations and social activities. This involvement, again, may improve the quality of life in a community and

raise property investment or values (DiPasaquale and Glaeser, 1999; Rohe, Van Zandt, and McCarthy, 2000). Moreover, economic research found that owner occupied units had higher values than renter occupied units (Coulson, Hwang, and Imai, 2003; Gatzlaff, Green, and Ling, 1998; Shilling, Sirmans, and Dombrow, 1991). One aspect that has not been fully examined in previous research would be the effects of occupancy status on housing prices depending on the existence of the foreclosure externality. Thus, these two hypotheses will investigate the effect of renter occupancy status on home in both a full sample and a distressed sample associated with foreclosure.

3.3.2.3 Hypotheses 5 and 6: Cash Transaction

Question 4: Does residential property sold in a cash transaction have a greater discount than financing transaction?

The fifth null hypothesis is as follows: holding all else constant, there is no difference between the sale price of a home sold in a cash transaction and the sale price of a home sold with a mortgage financing. The null hypothesis is denoted as H50: β Cash =

β Financing; the alternative hypothesis is denoted as H5A: β Cash < β Financing. It is expected

that there is a difference, and the expected sign will be negative, thus rejecting the null. It will be tested by using different housing types (single family home versus condo) and different housing cycles (a housing boom year versus a housing bust year).

The sixth null hypothesis is as follows: holding all else constant, there is no difference between the sale price of a home sold by cash that previously had a foreclosure filing and the sale price of a home sold with a mortgage financing that

previously faced a foreclosure. The null hypothesis is denoted as H60: β Foreclosure*Cash = β

Foreclosure*Mortgage Financing; the alternative hypothesis is denoted as H6A: β Foreclosure*Cash < β

Foreclosure*Mortgage Financing. It is expected that there is a difference, and the expected sign

will be negative, thus rejecting the null. It will be tested by using different housing types (single family home versus condo) and housing cycles (a housing boom year versus a housing bust year).

Many investors specialize in purchasing foreclosed properties through a cash transaction. Properties sold in a cash transaction are more likely to sell at a discount. Forgey, Rutherford and VanBuskirk (1994) found that property prices were discounted by 16% when purchased by cash. Clauretie and Danenshvary (2009) found that renter occupancy or a cash transaction had a negative impact on typical home sale prices, not controlling for distressed home sales associated with foreclosure. Furthermore, this hypothesis will investigate the price effect of cash transactions and renter occupancy status on both a full sample and distressed sample, which has not been examined in previous research.