Mnet :: Business

U.S. Newswire (Mar 02, 11:58 AM) WASHINGTON, March 2 /U.S. Newswire/ -- Expiring federal tax cuts, nagging state-level tax increases, and looming proposals to boost payroll taxes constitute a triple threat to small businesses: that's the warning the 350,000-member National Taxpayers Union (NTU) gave to policymakers at a forum sponsored by the Small Business & Entrepreneurship Council.

"Small businesses could be locked out of a prosperous future unless the tax cuts of the last four years are locked in," said NTU President John Berthoud, who served as a Speaker at the Council's event. "The income tax rate reductions, phase-out of the death tax, and numerous other recently-enacted provisions have fueled America's economic recovery, for which the small business sector has provided the most horsepower."

Berthoud, who holds a Ph.D. in Political Economy from Yale University, noted that approximately two-thirds of all personal income tax returns in the top bracket report at least some earnings from a small business, making the recent reductions in this and other personal tax brackets a vital component of relief for sole proprietorships and other small firms. He also cited results from NTU's 2004 study of Tax Code complexity, which found that a decade of tinkering with federal tax laws has added a billion extra hours to the annual paperwork burdens on American taxpayers, including small businesses.

"Here today, gone tomorrow tax provisions have contributed greatly to the planning headaches of small businesses," Berthoud said. "A steadily growing economy depends on a solid low-tax structure that businesses can confidently plan around in years to come."

Berthoud also cautioned that ill-advised tax hikes from state governments could prove catastrophic to the small business sector. "In their hunt for new revenue to squander, state lawmakers have disguised tax increases as licensing fees, loophole closures, or temporary surcharges, but the result is the same - businesses and their employees are starved to fatten government's coffers," he said.

Additionally, Berthoud observed that lifting the cap on earnings subject to Social Security taxes "could hit sole proprietors with a one-two punch to their pocketbooks," in the form of a marginal tax rate increase of over 12 percent. High- earning employees of small businesses would likely see a direct tax bite as well as a loss of future wage increases, while other workers might forfeit their jobs entirely as business owners struggle to shoulder the heavier tax load.

"Until the Tax Code is scrapped in favor of a simpler system, the bottom line for businesses may depend on making the recent tax cuts permanent and avoiding punitive increases in other federal and state taxes," Berthoud concluded.

NTU is a non-partisan citizen group working for lower taxes and smaller government. Note: Further tax policy research, including NTU's tax complexity study, is available at http://www.ntu.org.

http://www.usnewswire.com

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Tides of Change

by Mnet on Wed 29 Jun 2005 01:52 PM BST

Fort Worth Star-Telegram (Fort Worth, Texas) (Mar 21, 09:50 AM) Mar. 20--FORT WORTH -- On most days, Paul Williams sits on a bar stool on his porch, a Shiner beer at hand, waving at the passing cars as the western sun glints off the water.

Shoes are optional, but fishing is not. He knows when the catfish are biting.

"Life on the lake is good," he said, a smile turning up his thick handlebar mustache.

Williams, a handyman-for-hire around Lake Worth, lives in 720 square feet on a tiny lot that sits 30 paces from the water's edge. If he's not fixing plumbing or fishing, he's using a metal detector at the swimming beaches.

He is one of the reasons Lake Worth has never been confused with the more upscale Eagle Mountain Lake, even though both stretch up the northwestern side of Tarrant County. Folks at Lake Worth are proud of the distinction.

But the colorful characters, bizarre mythologies and quirky history -- a goat man, a boardwalk, a castle -- that define the lake may eventually yield to the same suburbanization and gentrification that have transformed other areas of Tarrant County.

The reason, simply put, is the land.

After almost a century, the city is loosening its grip on the land and selling it to the homeowners, and at generous prices.

It's what the homeowners have wanted. After years of leasing their lakefront land, they suddenly own valuable property on the water just 15 minutes from downtown.

But that newfound value may force a good number of them off the lake.

Joe Waller, 59, who has lived on the lake for more than 20 years, said the houses there are all distinctive -- not remotely alike. The same could be said for the people.

"The area on the lake is improving fast," he said. "Property values have escalated extraordinarily quickly. Houses and land are selling for higher prices.

"But I like Lake Worth because it is eclectic. I like the different kinds of people who live there. We're losing a lot of the real characters. They're getting priced out by the taxes on the property."

Few places around Tarrant County have as lively a history as Lake Worth.

The lake, which the city began filling in 1914, is one of the state's oldest man-made reservoirs and still provides a third of the water supply for Fort Worth.

At least a dozen city parks line the shore, from the expansive Nature Center and Refuge to tiny Camp Joy.

An 80-year-old castle stands watch over a portion of the shoreline. But another lake icon has passed into history, a fella named Catfish Charlie, who once ruled the roost at a dive called Nova's Shady Grove.

The lake was also the site of a gruesome murder spree in 1982, when Larry Keith Robison killed his housemate and four people next door. Five years later, an F-4 Phantom coming in for a landing at what was then Carswell Air Force Base crashed in the lake, killing the pilot and the weapons officer.

"Lake Worth became so much a part of the identity of the city," said Quentin McGown, a Fort Worth lawyer and historian. "The Sunday drive around the lake was a regular part of early life. Later, it became the ultimate site for urban legends.

"I don't know how many cities have their own goat man, but not very many."

Not long after the lake was filled, people started to build on its shores. Most used the simplest brick or clapboard construction.

The city formalized the building boom by signing long-term leases with people, thus retaining ownership of the land. It was an arrangement unique in Tarrant County.

It stayed that way until the early 1990s, with the city eventually hoping to buy people out and make the entire lake parkland.

"I just realized that it wasn't going to work," said Bill Meadows, who was then the city councilman for the area. "It was a nice idea, but it was going to cost us tens of millions of dollars to buy all these improvements around the lake.

"The other dynamic," Meadows said, "was that they were leaning on their City Council person, saying 'We want to own.' "

For more than a decade, the process of transferring the property has crept along in frustrating fits and starts.

But in recent years, the change has sped up. More than a third of the 600 lakefront properties are now in private hands. And the majority of the other homeowners have an agreement with the city to buy.

Property values, meanwhile, have shot skyward. The total value of residential lots around the lake soared 76 percent from 2002 to 2003, as the Tarrant Appraisal District began making large-scale adjustments.

Owning the property has, in most people's views, improved things for the residents, even if it leaves them to wonder what the place will look like in another generation.

"If you own your property, you take more pride in it," said Waller, who was among the first at the lake to purchase his property. "Once people have a chance to buy their own property, they have more security. They invest more in it."

Oh, the days when people flocked to Casino Beach. Thousands came, tens of thousands really, in the 1920s and '30s.

Some came for the Thriller, a state-of-the-art roller coaster that climbed all the way to 72 feet. Some came to stroll the boardwalk, just like in Atlantic City, N.J.

Some put on their tuxedos and ball gowns to dance in the 31,000-square-foot ballroom, where Tommy Dorsey and Duke Ellington played to huge crowds, as Jacksboro Highway flourished as a gambling destination.

Many more came just to play on a beach with real sand during hot summers without air conditioning.

By the 1940s, Casino Beach was fading as a destination. In 1973, with the boardwalk and amusement park long gone, a wrecking ball finished off the ballroom.

One more Lake Worth memory, gone.

For 14 years, Jerry Swanson leased 7.5 acres from the city and ran the Lake Worth Marina along with a restaurant and some docks.

About two years ago, Swanson, 69, decided he wanted to retire, so he tried to sell everything but the 1.2 acres on which he lived.

"Nobody wanted to buy a marina on leased land," he said.

Eventually, the city bought it from him, as the lease required, and demolished the buildings. Swanson bought the property his house sat on for $29,000. A year later, that land was valued at $128,000.

"They sell you the land for cheap," he said. "As soon as you buy it, TAD slam-dunks you with a big tax bill. We're on a fixed income. We're having a terrible time trying to keep up with the taxes."

Fortunately for the residents, the appraisal district ruled that the land did not constitute new improvements, and the annual taxable increase was capped at 10 percent.

Shelly Harper, who has lived at the lake for 15 years and is president of the East Lake Worth Neighborhood Association, watched her property value shoot from zero to $96,000 the year she bought her land on Cahoba Drive for $20,000.

That kind of sticker shock happened throughout the neighborhood.

"I went and protested, but it did absolutely no good," she said.

The Tarrant Appraisal District said the waterfront lots are worth at least $80,000, some much more, depending on their view and access.

That's what people get when they sell the lots privately, said Randy Armstrong, director of residential appraisal.

"It's all based on sales, every bit of it," Armstrong said. "The appraisal district does not make them up. The market determines property values."

That much Armstrong and Harper agree on.

"It has definitely enhanced the opportunities for people around here to sell," Harper said.

In the 1920s, Samuel E. and Elizabeth Whiting turned an 1860s stone farmhouse into one of the most out-of-place residences ever built in Fort Worth.

A castle. A turret. A tower. Thick walls and rich woodwork. Stained-glass windows. Built on the lake's southern shore, the castle bore the legendary name of Inverness, a famous castle in Scotland and the home of Macbeth in Shakespeare's play.

Most people, though, called it the Whiting Castle.

When the couple moved out in the 1950s, actor James Stewart briefly moved in for the filming of Strategic Air Command. But the house never found owners like the Whitings.

By the 1990s, it had been stripped of many of its valuables, graffiti left in their place. The city sold the property in 2000.

The ominous-looking structure is now protected by razor wire and signs warning that the police are watching.

Just down the road, at a place called Admiral's Point, were cozy cottages used as guest houses by the castle's owners. They were bulldozed when the castle was sold by the city; three big new houses were built in their place.

John Miles and his wife live in one of them.

"We had been looking for lake property," he said. "Eagle Mountain is more expensive than we wanted to pay. Arlington is too far. Here, so many of the houses are run-down and so old, we had to give it a lot of thought."

The view from his back yard is gorgeous, and it's certainly no hassle to drive to work at nearby Lockheed Martin. But the telephone service is awful, he said, and they can't get DSL service.

"There was a lot of stuff we should have checked into before," he said.

Miles is optimistic that the area will continue to improve, that the current owners will upgrade their properties or that new owners will move in.

"There's a good tax base out there if we can get some nicer houses in the area," he said.

But development tops many residents' list of concerns.

They have watched the explosive commercial growth along Jacksboro Highway. They have voiced their worries about traffic from the new Brewer High School planned for Silver Creek Road, a two-lane thoroughfare that feeds into Loop 820.

As new homes begin to spring up near the lake, residents are pushing the city to require large lots to avoid crowded neighborhoods.

Part of the concern, they say, is based on traffic congestion, but some is environmentally based. The city's comprehensive plan calls for low-density development and less concrete around watersheds such as Lake Worth.

"We're not trying to stop development around the lake," Waller said. "That will happen regardless. We're trying to control the shape and look of development."

For more than 20 years, residents have also pressed their concerns about the depth of the lake. Lake Worth is only a few feet deep in places because of decades of sedimentation.

They watched, rather insulted, as local leaders snagged quick federal approval for $110 million to help build Town Lake downtown, wondering why the city can't find money for a lake it already owns.

"It's a public lake, but because it is so shallow, it is dangerous to go boating or skiing," Waller said. "From a safety and a recreational standpoint, the entire city would benefit from its dredging."

The city is working with the Army Corps of Engineers on a study to "environmentally restore" portions of the lake, particularly where Silver and Lone Oak creeks flow in on the western side, said Paul Bounds, the water department's Lake Worth coordinator.

"That's more limited than dredging the whole lake," Bounds said. "We're not talking about increasing the depth of the entire lake."

Nothing terrified the residents of northwest Fort Worth more during the summer of 1969 than the Lake Worth Monster.

The monster apparently lived on Greer Island, off the shore of the Nature Center, and took to hurling tires and attacking cars and generally provoking panic.

More than 100 people reported seeing him that summer. Star-Telegram stories quoting baffled authorities led to ever-greater numbers of gun-toting would-be monster killers roaming the lake's shores.

The monster was described as a 7-footer with a heck of a foot. One footprint was reported to be 16 inches long and 8 inches wide.

He was hairy and believed to be half-man, half-goat.

But he apparently disappeared as quickly as he came. He hasn't been seen since.

Williams, the handyman, pays $55 a month for his lease, an admittedly sweet deal for the luxury of walking barefoot to his boat dock to throw a line in the water.

He's lived at the lake since 1983 and knows many of the other long-timers and their quirky houses. He's now on a stretch of Watercress Road that the city plans on keeping because the houses sit too close to the road, creating problems with rights of way, officials said.

Not that it matters much to Williams anyway. Even if he could come up with the money to buy the land, the taxes would eat him up.

"It makes more sense financially for me to stay with the lease," he said. "I'll stay here as long as I can."

Gracey Tune, the sister of famed Broadway dancer Tommy Tune, has much the same feeling.

She's lived on the lake since 1979. She chose Lake Worth because of its people.

"We looked at two-thirds of the houses on Lake Worth when I first moved out here," said Tune, who runs a neighborhood art and dance studio in Fort Worth. "A lot of those people are gone. I've seen more of the change in the last few years.

"Now I look across the lake and say, 'When did that house go up?' "

After renting all those years, Tune bought a 1940s-era house on Mosque Point in December. She doesn't own the land because she missed the chance to pay the affordable price from the city. The market price, her only option now, is at least $100,000.

But, like Williams on the other side of the water, she will stay as long she can.

"We had these neighborhood bars that you walked to, and people would bring their food in and we would tell stories," Tune said. "I met a man who made his own wild grape wine out of the vines out there. The memories are so rich for me.

"There aren't any places like that anymore."

Staff writer Jeff Claassen and news researcher Marcia Melton contributed to this report.

MOST LAND ALONG LAKE WILL BE SOLD TO RESIDENTS

Almost all the residents living along the shore of Lake Worth have signed an agreement with the city that gives them the right to purchase their leased land at 2001 appraised values.

When the proper infrastructure -- including sewer service -- is on each tract, the city puts the land up for sale, said Doug Rademaker, who oversees real property management for the city.

The city has taken in $3.4 million from the sale of 238 properties. An additional 320 properties remain to be sold, Rademaker said.

About 40 of the leases won't change hands because running water and sewer to the areas is too expensive or because there are access issues, he said.

"We'll continue to honor the leases, but we won't be able to sell," Rademaker said.

The money from the sales is deposited into the Lake Worth Infrastructure Fund.

Only one area -- around Love Circle -- has not received water or sewer services, according to Paul Bounds, the water department's Lake Worth coordinator.

The city hired an appraiser in 2001 to set values on the property, but the prices remain far below the market. That's not a problem, Rademaker said.

"Since the city had a long-term relationship with the residents, we thought it was in our best interest to convey the property to them," he said.

--Chris Vaughn

-----

To see more of the Fort Worth Star-Telegram, or to subscribe to the newspaper, go to http://www.dfw.com.

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The Impact of the Internet on Development Strategies of Real Estate Agencies

by Mnet on Wed 29 Jun 2005 01:49 PM BST

The Impact of the Internet on Development Strategies of Real Estate Agencies: A Qualitative Study Based on Beijing's Real Estate Agency Industry

Journal of Real Estate Literature (Mar 02, 03:28 AM) Wang, Chen. University of Hong Kong, 2003. The Impact of the Internet on Development Strategies of Real Estate Agencies: A Qualitative Study Based on Beijing's Real Estate Agency Industry.

This study investigates the impact, if any, of the Internet and information technologies on the burgeoning real estate agency industry in Beijing, China. The obvious potential for interaction between the information superhighway and professional real estate services suggests that the design and services of real estate agency could be in a period of structural change. A major concern among real estate companies is the substitution of online services for those traditionally delivered personally. However, in spite of general fears concerning redundancy among real estate professional in Beijing, the results of this study suggest that advancements in information technology actually support the building up of competitive advantages for firms. Further, it appears that the Internet acts as a bridge linking up not only customers to suppliers, but also allows real estate agencies to diversify and spin off additional forms of business.

The dissertation titles and abstracts contained here have been condensed and are published with permission of University Microfilms, Inc., publishers of Dissertation Abstracts International (copyright 1990 by University Microfilms, Inc.), and may not be reproduced without their prior permission. Copies of most of the complete dissertations may be obtained by addressing your request to:

UMI

300 N. Zeeb Road

Ann Arbor, MI 48106

Or by telephone (tool-free) 1-800-521-3042.

* Indicates dissertations in which only a chapter or a significant part of the work is devoted to government policy and planning, real estate business and industry issues, property, contract and transaction types, real estate decision-making processes, market analysis, methodological and theoretical issues, or other real estate related issues.

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The Dangers of Europe's Creative Accounting

by Mnet on Wed 29 Jun 2005 01:47 PM BST

International Herald Tribune (Mar 23, 11:53 AM) Did Greek accountants miss a trick? It is possible that last week, in posting the highest budget deficit recorded so far by any euro-zone country, Greece has simply offered a more honest appraisal of its financial woes than the other 11 countries using the European common currency.

Over the past decade, European governments have refined techniques that mask the extent to which they spend beyond their means. This week, they came up with a new one: giving Germany leeway to take its reunification costs into account even though West and East Germany officially merged 15 years ago. So far, investors have not noticeably penalized governments for such activity. The euro, which the deficit rules are intended to protect, has strengthened against the dollar even as fiscal discipline has weakened. But there seems to be an increasing danger, economists say, that debt traders, the so-called vigilantes of the bond market, will punish European governments for giving unrealistic assessments of their accounts. Already, there are signs of that starting to happen. On Friday, reference rates widened for Greece and for Italy, which also got bad deficit news from the EU statistics office, showing that markets have less faith than before in those countries' ability to manage their finances. Economists warn that this could lead to higher interest rates for everyone in the euro zone if Europe's central bank fears that investors might pull out of Europe, or if it sees higher inflation on the horizon. "The volatility is relatively significant and a strong reminder that deficits can matter," said Herve Clos, an interest rate strategist at BNP Paribas in London. Traders are now focused on whether the rate movement, which means that governments in Rome and Athens must pay more on their debt, will spread to German and French bonds, Clos said.

"Studies show that most euro-zone countries have resorted to a degree of creative accounting at one time or another," said Laurence Boone, a director at Barclays Capital in Paris. Budget overruns in Greece and Italy, as well as pressure from France and Germany to loosen the rules, suggest the need for "independent fiscal commissions that would properly investigate public accounts in the same way as auditors in the private sector," she said.

The driving force behind creation of the euro was that a fixed currency would lower costs and remove exchange-rate uncertainty for businesses within Europe. Political agreement was needed to keep spending among the member states in check and ease fears that a maverick state could trigger inflation.

Lately, countries have been using one-time events to help improve their accounts. The most spectacular example was the sale of next- generation mobile phone licenses. In 2000 alone, euro-zone governments raked in 71 billion, now worth about $94.5 billion, for allowing companies like Deutsche Telekom to carve up the airwaves for high-speed Internet access. That money was "manna from heaven," said Vincent Koen, an economist at the Organization for Economic Cooperation and Development. He calculates that the great telephone sale knocked 1.1 percentage point off euro-zone countries' average deficit, as a percentage of gross domestic product, in 2000. He also notes more serious gimmicks, such as booking cash from sales of state industries but not fully reflecting continued obligations to pay pensions to retiring workers.

That is what France did in 1997, when the government agreed to cover France Telecom's pensions as a way to entice investors to take a stake in the company. The sale allowed France to knock half a percentage point off its deficit rate.

This year, France plans to repeat the process, partly privatizing Electricite de France and Gaz de France, using the proceeds to increase its revenue by around 7 billion and shaving 0.4 percentage point off its deficit rate. Meanwhile, economists say, the full picture of France's long-term obligations to retiring workers probably will not figure in the calculations. Another favored tactic of hard-pressed governments is to book revenue they do not yet have. Koen says Italy counted future revenue from the national lottery in 2001, wiping 0.2 percentage point off its deficit number.

Not all the euro zone's forecasting errors are due to such maneuvers. The economic downturn that started in 2001 contributed to widening government deficits and deepening national debts. But economists are convinced that such sluggishness cannot entirely explain the discrepancies, and many now fear that accounting sleights of hand will only become easier to perform with the currently proposed revisions to the European Union's Stability and Growth Pact.

"Many instances of government accounting have been abnormal," said Olivier Gasnier, an economist at SG Paris. "It now looks like governments will have lots more possibilities to avoid taking painful decisions."

Greece's revised deficit for 2004 came in at 6.1 percent of gross domestic product, or just over twice the 3 percent EU limit. The Italian deficits for 2003 and 2004 could also be revised above 3 percent of GDP, Eurostat, the EU statistics agency, said on Friday.

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The Composition of Hedonic Pricing Models

by Mnet on Wed 29 Jun 2005 01:45 PM BST

Journal of Real Estate Literature (Mar 02, 03:28 AM) Abstract

A house is made up of many characteristics, all of which may affect its value. Hedonic regression analysis is typically used to estimate the marginal contribution of these individual characteristics. This study provides a review of recent studies that have used hedonic modeling to estimate house prices. The findings indicate that slanted versus flat roof, sprinkler system, garden bath, separate shower stall, double oven and gated community positively affect selling price while not having attic space, living in an earthquake zone, proximity to a hog farm, proximity to a landfill, proximity to high voltage lines, corporate-owned properties, percentage of Blacks or Hispanics in an area and properties that require flood insurance negatively affect selling price.

Introduction

Home is defined as the social unit formed by a family residing together. A house, on the other hand, is a bundle of characteristics such as size, quality and location. For a number of reasons, valuing a house is difficult. Being a physical asset, each house has its own specific location. Also, a house is a long-term durable good with a long life, which means that houses with substantially different ages can exist at the same time in the same market. Each house has its own unique set of characteristics that affect value. In addition, certain housing characteristics may be valued differently across different geographical areas. For example, a garage may have a greater value in a colder climate whereas a swimming pool may have a greater value in a warmer climate.

In addition to the problem of the presence of different characteristics across houses, homebuyers possess unique utility functions causing them to value characteristics differently. For example, one homebuyer may place a greater value on hardwood floors than another buyer. Thus a certain house with a given set of characteristics may be valued differently by different buyers.

All these factors suggest that housing is not a homogeneous good. Different bundles of characteristics make valuation difficult. The fact that buyers may value individual characteristics differently further complicates the process. Nonetheless, a substantial body of historical research has attempted to explain the value of housing by valuing its individual components. The typical method used to do this is the hedonic pricing model, because it allows the total housing expenditure to be broken down into the values of the individual components. One caveat in using hedonic pricing models is that the results are location-specific and are difficult to generalize across different geographic locations. Because of this, hedonic pricing models are generally used to gain insight into the workings of a particular market. On the other hand, comparing studies across areas may at least establish those characteristics that are consistently valued (either positively or negatively) by homebuyers.

Comparing studies that use hedonic models is complicated by the fact that studies define and measure variables differently. For example, one study may measure bedrooms as simply the number of bedrooms whereas another study may use binary variables (a dummy variable if the house has one bedroom, a second dummy variable if the house has two bedrooms, etc.) The comparability of previous hedonic pricing studies is also complicated and/or limited because of different empirical specifications. Typically, hedonic pricing equations have been estimated using linear or semi-logarithmic models.

Even with its problems, however, hedonic modeling can be (and has been) useful in addressing a number of issues in housing valuation. It has been used in valuing not only the obvious components such as square footage, bathrooms, etc. but has also been useful in measuring the effect of other issues such as school quality, proximity to a landfill or high voltage lines, and the effect of non- market financing.

Malpezzi, Ozanne and Thibodeau (1980) compare housing to a bundle of groceries in that some bundles are bigger than others and contain different items. Housing is a bundle of bedrooms, bathrooms, and other amenities and the particular bundle of a house distinguishes it from other houses. However, unlike groceries, the price of individual features cannot be directly observed. The usefulness of hedonic modeling is to price these individual features by using multiple regression analysis on a pooled sample of many dwellings. As these authors point out, using this model assumes that consumers derive utility (and therefore value) from various housing characteristics and that the value of this utility can be priced. In housing consumption, consumers will pursue maximization of utility within their budget constraint.

The hedonic model generally takes this form:

Price = f(Physical Characteristics, Other Factors).

This says that the price of the house is a function of its physical characteristics (square footage, bathrooms, age, location, various amenities, etc.) and other factors such as school quality and external factors. The regression estimates give the implicit prices of each variable or characteristic. A complication is that these values are not likely to be the same for all price ranges of houses. For example, the value added of a bedroom might be greater for a $500,000 house than for a $100,000 house. For this reason, the hedonic pricing model is often estimated in semi-log form with the natural log of price used as the dependent variable. Then the coefficient estimates allow one to calculate the percentage change in price for a one-unit change in the given variable. The remainder of the paper reviews recent studies that have estimated hedonic pricing models. After a brief discussion of the early history of hedonic models, the review covers primarily studies that have been published over the last decade. Approximately 125 studies were examined from a number of different journals including the Journal of Real Estate Research, Journal of Real Estate Finance and Economics, Real Estate Economics, Journal of Urban Economics, Land Economics and The Appraisal Journal. The major objectives are to determine variables that are consistently significant in explaining price, compare the coefficients of some variables by geographic location, and examine the relationship between house price and time- on-the-market.

The Theoretical Development of Hedonic Pricing Models

In his 2003 paper, Malpezzi presents an excellent review of the theoretical development behind hedonic pricing models. As he points out, the hedonic model is a way to estimate the value of individual characteristics of the house. Hedonic equations have also been used to measure the effect of various factors of special interest on house prices.

Hedonic models are typically estimated as single-stage equations. That is, the model simply estimates the effect of characteristics on price and does not examine the structural parameters of the individual characteristics. Hedonic models also are estimated various ways regarding the dependent variable, the house price. Price may be specified as an absolute amount (unlogged) or as a logged variable. The most typical model structure historically has been the semi-log form, with the price specified in natural logs and regressed against unlogged independent variables. This allows for variation in characteristic prices across different price ranges within the sample.

Theoretical Underpinnings of the Hedonic Model

As Malpezzi (2003) discusses, the hedonic model arises because of a heterogeneous housing stock and heterogeneous consumers. Not only does each house contain different housing characteristics, but those characteristics may be valued differently by different consumers.

Econometrics has always faced the problem of identification (i.e., distinguishing between supply and demand). In the typical supply and demand model, the price of the good is exogenous and the consumer, being a price-taker, decides how much to consume based on the price. In a nonlinear hedonic model where the price varies with the quantity, the consumer chooses both a quantity and price.

Specification Problems

Due to the difficulty in the practical application of hedonic models, the functional form of the model and the variables included in the model can often seem ad hoc. This can be traced back to the original papers of Lancaster (1966) and Rosen (1974) that present models of housing characteristics but do not specifically identify what those are. In practical application, the dependent variable in the model is usually a recent selling price, standing as a proxy for the value of the house. Using the observed price is generally thought to better minimize bias as compared to other measures such as an owner's self-assessment.

There is almost a limitless number of independent variables that can be included in the model. The high correlation of some of these variables with each other can create estimation problems even if all the variables are not included in the model. For example, a location variable may appear to be highly significant in the model but may actually be reflecting something else, such as school quality. Because of this, interpretation of the individual coefficients can be more difficult.

Studies have wrestled with the problem of correct functional form. Follain and Malpezzi (1980) found that the semi-log specification hassome advantages over the linear form. Some of these are: (1) it allows for variation in the dollar value of each characteristic; (2) the coefficients can be easily interpreted as the percentage change in the price given a one-unit change in the characteristic; and (3) the semi-log model helps minimize the problem of heteroscedasticity.

The Early History of Hedonic Models

Identifying the "father" of hedonic modeling is not easy. In his review, Malpezzi (2003) points out that a study by Court (1939) is often cited as the beginning of hedonic models, although this study actually developed a hedonic price index for automobiles and not for housing. As Goodman (1998) discusses, although popularized by Griliches (1958) in his work on the demand for fertilizer, the term "hedonic" dates back to the 1939 Court article and that Court is generally cited in most articles. Goodman argues that, as a hedonic price analysis, Court's work stands up quite well under contemporary standards. Court, as an economist for the Automobile Manufacturers' Association from 1930 to 1940, recognized that a single variable could not explain automobile demand. His hedonic model to explain price included three variables: dry weight, wheelbase and horsepower. His modeling would be considered modern in that he used a semi-log form, accounted for cars that actually sold and estimated the models over different time periods.

A 1999 study by Colwell and Dillmore, however, points out that it is highly unlikely that Court is the original source of hedonics. Seventeen years prior to the Court study a monograph by Haas (1922a) at the University of Minnesota applied a hedonic model to estimate the value of farmland. Also, a 1926 study by Wallace examined the value of farmland in Iowa. Colwell and Dillmore connect Court to Haas (and Wallace) this way: Court developed his idea for a hedonic model from discussions with the chief of the Bureau of Labor Statistics who probably knew of the work by Wallace and maybe the work by Haas.

Later studies important to hedonic modeling are Lancaster (1966) who provided a microeconomic foundation for estimating the value of utility-generating characteristics (with a natural application to housing) and Rosen (1974) who focused on characteristics with less emphasis on utility and more on price determination. Rosen's work provided the basic foundation for nonlinear hedonic pricing models.

The Relationship between Selling Price and Time-on-the-Market

Typically, a seller's goal is to sell the house at the highest possible price in the shortest possible time. These two objectives are generally reconciled with the setting of the listing price. A listing price that is too high may have the effect of both lengthening the selling time and limiting the pool of potential buyers. Setting the listing price too low may minimize the selling time but may also result in a selling price lower than what otherwise could be attained.

Since selling price and time-on-the-market tend to be interactive variables, some studies have estimated simultaneous or two-stage models to capture the effect. Specifying such models for selling price and time-on-the-market is difficult since they tend to be very similar. This section discusses some recent studies that have followed this procedure.

When time-on-the-market is included and statistically significant in the selling price equation, it is generally negative. This indicates that a longer selling time results in a lower selling price. When selling price is included in a time-on-the-market estimation, the results are much less clear. In some cases, a higher selling price leads to a longer selling time whereas in others, a higher selling price results in a shorter selling time.

The following are some recent studies that have examined the relationship between selling price and time-on-the-market. Jud, Seaks and Winkler (1996) examine the impact of brokers, brokerage firms and marketing strategy on time-on-the-market using a duration model. They find duration dependence to be positive, indicating that the probability of selling the property increases with time-on-the- market. Their results show that higher listing prices result in a longer time-on-the-market whereas reducing the listing price decreases time-on-the-market. The results also show that atypical homes have a longer time-on-the-market.

A 1996 study by Forgey, Rutherford, and Springer estimates a two- stage least squares model of house prices and time-on-the-market. Their results show that housing liquidity depends on market participants' search effort, which is determined by market conditions, physical characteristics of the property, the size of the brokerage firm and listing price. They find that houses with higher liquidity sell for higher prices and that selling prices increase with sellers' search effort.

In testing real estate agents' comments, Haag, Rutherford and Thomson (2000) estimate Ordinary Least Squares (OLS) models for selling price and time-on-the-market. They find that time-on-the- market has a significant negative effect on selling price. Their time-on-the-market equation includes list price, which is shown to be not significant. They find that motivated sellers accept lower selling prices but have a longer selling time and that updated properties produce a higher selling price and a shorter selling time. However, they find that some other improvements such as new paint and roof work decrease price and increase time-on-the-market.

In examining exclusive agency and exclusive right to sale contracts, Rutherford, Springer and Yavas (2001) estimate a simultaneous equations model for selling price and time-on-the- market. The first stage regresses time-on-the-market against various factors and the second stage regresses selling price against a similar set of factors. The results show a positive relationship between selling price and selling time and that exclusive agency listings and builder-owned listings have a shorter selling time than exclusive right to sale listings and owner-held properties. However, exclusive agency listings are associated with lower selling prices while builder-owned properties have higher selling prices. Another 2001 study by Johnson, Salter, Zumpano and Anderson examines the effect of artificial stucco on house prices and selling time. They first use a probit model to relate the presence of artificial siding to explanatory variables. Next, they estimate the selling price using typical explanatory variables with artificial stucco included. Then, they use duration modeling to measure the effect of artificial stucco on selling time. Their results suggest that properties with artificial stucco sell at a premium although the selling time is longer.

Knight (2002) uses a maximum-likelihood probit model and information on price changes during a home's marketing period to examine the selling price and time-on-the-market relationship. He finds that it is expensive to overprice the house initially. Homes that had large percentage adjustments in listing price not only had longer selling times but also ultimately sold at lower average selling prices. A 2003 study by Anglin, Rutherford and Springer also examines the importance of setting the initial listing price and the marketability of the property. The paper measures the degree of overpricing as the percentage difference between the actual listing price and the expected listing price. Their theoretical models shows that there is no direct tradeoff between selling price and selling time but that market conditions affect how the expected selling price and the expected selling time vary jointly based on the initial listing price. They find that increases in the listing price increase time-on-the-market. Their results also show the importance of changing marketing conditions on selling time.

These studies illustrate the difficulty in specifying the relationship between selling price and time-on-the-market. Because of this, most studies involving hedonic pricing models have chosen to ignore these problems by estimating a simpler OLS model, although time-on-the-market is sometimes included as an explanatory variable.

Review of Recent Hedonic Pricing Model Studies

This section discusses some studies published over the last decade that have used hedonic modeling. Approximately 125 were examined.

The Top Twenty Characteristics

Exhibit 1 shows the top twenty characteristics that have been used to specify hedonic pricing equations. The exhibit shows the total number of times a characteristic has been used and the number of times its estimated coefficient has been positive, negative, or not significant. As seen, age shows up most frequently in hedonic models and typically has the expected negative sign although it is seen to be positive and not significant in some studies. Square footage is the next most used characteristic and typically has the expected positive effect on selling price. Other characteristics that appear frequently are garage, fireplace and lot size. Each typically has the expected positive effect. Garage never has a negative sign but it has been not significant in a number of studies. Fireplace shows up negative in only a few studies and lot size never shows up negative.

Other characteristics that show up frequently are bedrooms, bathrooms, swimming pool and basement. Bedrooms show up negative in some studies but bathrooms almost never do. A swimming pool never has a negative effect on selling price although it has been not significant in some studies. Basement is usually positive but it has been shown to be negative or not significant in some studies.

Time-on-the-market shows up in eighteen studies and shows to be not significant most often. When it is significant, it is negative to positive eight to one. This tends to support the argument that the longer a house is on the market, the more willing the seller is to concede o\n the selling price. The opposing theory is that the longer a house in on the market, the more likely the seller is to find the one buyer willing to pay a higher price.

Other characteristics that have been commonly used to specify selling price include distance variables, brick exterior, the number of stories and a time trend. Brick exterior is consistently positive but the other variables have different signs. This could be at least partially a function of the method of specification.

Typical Characteristics by Category

Exhibit 2 shows the top five characteristics by eight categories. The most common structural characteristics are lot size, square feet, age, number of bathrooms and number of bedrooms. All characteristics except age typically have the expected positive sign.

Internal features that appear most frequently are full bathrooms, half bathrooms, fireplace, air-conditioning, hardwood floors and basement. These characteristics rarely have negative coefficients although they sometimes do appear not significant.

External features used most frequently in explaining selling price are garage/garage spaces, deck, pool, porch and carport. None of these characteristics had negative coefficients except carport. One study reported a negative sign on carport.

Exhibit 1

The Twenty Characteristics Appearing Most Often in Hedonic Pricing Model Studies

Characteristics provided by the natural environment consistently have a positive effect on selling price. These include lake front or view, ocean view and a "good view."

Environmental characteristics created by neighborhood or location include location, crime, distance, golf course and trees. Location is generally measured as a neighborhood identifier, zip code, etc. and typically has a positive effect on price. Crime is usually measured as the crime rate for a given area and typically has a negative effect on price. Distance is typically measured as distance from the city center and the estimated coefficient has been both positive and negative. Golf course is usually measured as being on or near a golf course and, as expected, consistently has a positive effect on selling price. Trees usually mean a wooded lot versus an open lot and is also seen to consistently have a positive effect on price.

Environmental characteristics resulting from public services include the school district, percentage minority in school district and access to a public sewer. In general, the consistent significance of the school district variable indicates that perceived school quality has a significant effect on house prices. An increasing minority population in schools has a consistent negative effect on selling price.

Exhibit 2

The Top Five Characteristics by Category from Hedonic Pricing Model Studies

Exhibit 2

The Top Five Characteristics by Category from Hedonic Pricing Model Studies

Marketing, occupancy and selling characteristics include the assessor's judgment of quality, the assessed condition of the house, whether the house is vacant at the time of sale, whether the house is owner-occupied, the time-on-the-market and a time trend. Measures of quality and condition have a positive effect on price. Being owner-occupied also has a positive effect. Being vacant and for sale is not good for the selling price. Generally, time-on-the-market has a negative effect and the time trend variables have been not significant.

The last category, financial issues, includes types of financing (FHA, VA, favorable), whether a house is in foreclosure and property taxes. Studies show that houses with FHA or VA financing sold for less than houses with conventional financing. Being in foreclosure also has a negative effect on price. Studies on property taxes are mixed. One study shows a negative effect while two studies show property taxes are not significant.

All Characteristics by Category

Exhibit 3 presents a comprehensive list of the characteristics that have appeared in hedonic models. As seen, a large of number of diverse variables has been used to define selling price. This section discusses some interesting variables that have not been previously discussed. For example, structural characteristics such as roof type, having a sprinkler system or not having attic space affect selling price. Interior amenities such as having a garden bath, a separate shower stall and a double oven in the kitchen have a consistent positive effect on price. On the other hand, having a fence has not been shown to affect price.

Natural environmental characteristics related to earthquake magnitude or earthquake zones have a negative effect on selling price while living in a gated community has a positive effect. One study, examining the effect of proximity to a hog farm found that selling price decreases as the manure index increases.

Interesting neighborhood characteristics include proximity to a metro station, distance to a landfill and proximity to a religious building. Prices are shown to not be higher for houses closer to a metro station. Likewise, selling prices increase with distance from a landfill. Being located close to a religious building has been shown to both increase and decrease price.

One study shows that being located in proximity to high voltage power lines reduces selling price while the percentage of gifted students in the school increases price.

Studies have shown that houses that are corporate owned have lower selling prices. Studies also show that selling prices decrease as the percentage of Blacks or Hispanics in the area increases.

Exhibit 3