Real estate underpricing and the removal of surveyor valuations = Underprising i boligmarkedet og avskaffelsen av verditakst

Abstract

According to Norwegian law, it is illegal to strategically underprice (in Norwegian "Lokkeprise") real estate, which involves setting an asking price that the seller is not willing to accept and/or a low asking price compared to the expected market value of a dwelling. We analyse the 2016 policy shift of abolishing third party surveyor valuations (in Norwegian “Verditakst”) on underpricing in Oslo and Bergen. We argue that real estate agents prefer a quicker sale compared to sellers, and are therefore interested in setting a low asking price to attract more bidders. Further, we suggest that abolishing surveyor valuations increases information asymmetry between the agent and the seller, thus enhancing the agent’s opportunities to underprice. Using both non-experimental and quasi-experimental analyses, we find strong evidence in favour of increased underpricing from removing the surveyor valuation in Oslo. The average increase in the spread between the sales price and asking price is estimated at 2 - 3 percentage points, corresponding to NOK 100 000 - 150 000.