First-Sale Bias and Age Effects: Do 'New' Properties Sell at a Premium?

Abstract

In this paper the affect of age on the price of residential property is investigated. A significant premium is observed in the price of newly constructed property. A regression analysis indicates that new houses (units) sell at a premium, relative to an otherwise identical property, of 11% (19%) in Adelaide, and 10% (7%) in Perth. These properties then underperform the market over the period until a subsequent sale of the property. This pattern is consistent with the empirical results on initial equity offering overpricing and subsequent underperformance. Taken together theses' results indicate a nonlinear relationship between the age of a property and its price. This nonlinearity provides a challenge to modellers building pricing models based on standard linear hedonic functions with age as factor.