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Transaction cost and transparency on the owner-occupied housing market: An international comparison
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.
2011 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This dissertation consists of four essays with specific objectives. The overall objective is, however, to seek a further understanding of the issue of cross-border residential transaction markets. While the first two essays focus specifically on transaction processes and costs in a number of selected countries, the two subsequent essays shift their attention towards the EU’s Internal Market and the impact of differences between the countries, with relation to the transparency of transaction markets. The research is primary based on studies of written sources, subject-specific literature and legislation. The main message is that organization of the transaction process affects transaction costs in different ways. It can be argued that efficiency is associated with a lowering of transaction costs. The efficiency of different structures depends on our perspective. Transparency is associated with the organisation of transactions and their needs, though the term is somewhat unclear. Generally, the term may refer to the ability of transaction participants to observe information concerning the transacting process, thereby increasing their knowledge to make informed decisions. Thus it can be argued that a better basis for the decision-making process presupposes information disclosure, more standardized transaction practices, synchronized legal systems, and both legible and transparent regulations. This leads to the design of a transparency system, which is based on an understanding of the need for the system and its goal. Although reaching transparency will be both complex and time-consuming, this study draws attention to certain key aspect of the need to encourage transparency.

The first two essays focus on how residential transactions are organized in selected countries and on the costs for carrying out these transactions. Essay II works with two hypotheses concerning the relation between the organizational structure and the transaction costs. The study shows that transaction processes and costs differ considerably between the countries and as a result it is difficult to arrange the countries in a clear way according to their rules. Moreover, there is no clear connection between a broker’s education level and how large a part in the process s/he plays. The total transaction costs excluding taxes vary from approximately 3 up to 8.5 percent. The costs are lower when the recording system is well arranged, when a broker has a bigger part in the process and when a conveyancer is impartial. In the countries where a broker has a higher education level and plays bigger part in the process, the broker’s commission is not any higher when compared to other countries in the study. The study shows also that transaction costs are lower in the countries where the broker has a more neutral role and where fewer parties are involved in the process. Thus in order to avoid high transaction costs, it is important to avoid situations where both buyer and seller have their own agents. Furthermore, the availability of standardized information about properties may increase the efficiency of the market even though it increases the short run transaction cost.

Essay III provides a theoretical framework for an analysis of the concept of transparency in residential property transactions within the EU’s internal market and tries to identify the essential factors that need to be addressed with respect to transparency of procedural, regulative and economic features. Essay IV seeks a further understanding of the issue of transparency in the residential property transaction market and attempts to define the state of transparency on the basis of selected EU-countries, in accord with five specific dimensions. The essential points are that an increase in cross-border transactions increases demand for easy access to information in other countries, and that the studied literature focuses on the coordination of legal systems, which produces systems that are more uniform and legally secured, and on broadening the mortgage market. Some of the aspects analysed in the study are far from transparent while others may be considered relatively transparent. The degree of transparency in the EU’s internal market is determined by how transparency is defined, since something may be transparent based on a certain criteria but not on others, especially when the concept is a relative one and subject to changes. The study raises some key aspect as a basis for discussion about the encouragement of transparency.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology , 2011. , 15 p.
Series
Trita-FOB-PHD, 2011:5
Keyword [en]
transaction process, transaction cost, real estate transaction, property transaction, residential transaction, cross-border transaction, transparency
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:kth:diva-48747Local ID: 978-91-85783-20-5OAI: oai:DiVA.org:kth-48747DiVA: diva2:458466
Public defence
2011-12-02, D3, Lindstedtsvägen 5, KTH, Stockholm, 13:00 (English)
Opponent
Supervisors
Note
QC 20111123Available from: 2011-11-23 Created: 2011-11-23 Last updated: 2011-11-23Bibliographically approved
List of papers
1. Transaktionsprocess och transaktionskostnader för småfastigheter: en internationell jämförelse
Open this publication in new window or tab >>Transaktionsprocess och transaktionskostnader för småfastigheter: en internationell jämförelse
2006 (Swedish)Licentiate thesis, monograph (Other scientific)
Abstract [en]

The study deals with real estate transaction for one-family houses and aims to compare and analyse the transaction processes and costs in six countries: Sweden, Finland, Norway, Poland, England and USA. The study identifies the main features of the normal transaction in each country and tries to measure the costs of the process. A basic description of the role of the real estate agent/broker is presented, referring among others to legal role of the agent/broker and the requirements for being allowed to work as real estate agent/broker.

The conclusions of the study are that transaction processes differ considerably between the countries and that transaction costs vary. Only in Sweden and Norway, can and may a real estate broker carry out the whole transaction while in Poland, England and USA either a notary, an attorney or an otherwise authorized person is also required in the process. In Finland a purchase witness is required to confirm the purchase. It is difficult to arrange the countries in a clear way according to their rules, because even if a group of countries resemble each other in some aspects, they differ in others.

There is no clear connection between how large part a real estate broker plays in the process and the broker’s education level.

The total transaction costs excluding taxes vary from approx. 3-3.5 % of selling price in Norway and Sweden and up to approx. 8-8.5 % of selling price in USA and Poland. The transaction cost is, for example, lower if the recording system is well arranged, if a real estate broker has a bigger part in the process and the conveyancer, the professional who assists in the legal transfer of property, is impartial. The cost can also, but not always, be lower if only one real estate broker works with one commission and if the real estate broker is impartial, i.e. is enjoined to assist both parts in the process.

In the countries where a real estate broker has a higher level of education and plays bigger part in the process, the estate agents remuneration is not higher compared to other studied countries

Place, publisher, year, edition, pages
Stockholm: KTH, 2006. 167 p.
Series
Trita-BFE, ISSN 1104-4101 ; 06:72
Keyword
real estate transaction, transaction cost, real estate broker, real estate agent, real estate agency
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-4093 (URN)91-975984-0-2 (ISBN)
Presentation
2006-09-18, Sal V3, KTH, Teknikringen 72, Stockholm, 13:15
Opponent
Supervisors
Note
QC 20101118Available from: 2006-09-08 Created: 2006-09-08 Last updated: 2011-11-23Bibliographically approved
2. Transaction Costs for Single-family Houses: An International Comparison
Open this publication in new window or tab >>Transaction Costs for Single-family Houses: An International Comparison
2008 (English)In: Nordic Journal of Surveying and Real Estate Research, ISSN 1459-5877, E-ISSN 2341-6599, Vol. 5, no 1, 24-41 p.Article in journal (Refereed) Published
Abstract [en]

The transaction process and transaction costs for single-family houses in six countries are analyzed. Among the results for the "real" transaction costs, taxes included, are that transaction costs are lower in the countries where the broker has a more neutral role, and in the countries where the register system is more developed and where fewer parties are involved. In order to avoid high transaction costs it is important to avoid a situation where both buyer and seller have their own agent. Standardized information about properties, like the Home Information Pack in the UK, can however increase the efficiency of the market even though it increases the short run transaction cost.

Keyword
single-family houses, brokers, transaction cost, transaction process
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-48717 (URN)
Note
QC 20111122Available from: 2011-11-22 Created: 2011-11-22 Last updated: 2017-12-08Bibliographically approved
3. Transparency in the EU’s Residential Housing Market: A Theoretical Framework
Open this publication in new window or tab >>Transparency in the EU’s Residential Housing Market: A Theoretical Framework
(English)In: International Journal of Law in the Built Environment, ISSN 1756-1450, E-ISSN 1756-1469Article in journal (Other academic) Accepted
Abstract [en]

Purpose – The purpose of this paper is to give a theoretical framework for an analysis of the concept of transparency in residential real estate transactions within the EU‟s Internal Market. In this way, it is possible to identify the essential factors that need to be addressed with respect to transparency.

Design/methodology/approach – The study is based on a review of the literature on the general concept of transparency, as well as other related sectors.

Findings – Based on this study, five dimensions of transparency are identified: transparency in transaction procedure, legal information, financing, taxation and transaction costs. The essential points are that an increase in cross-border transactions increases demand for easy access to information in other countries. The studied literature focuses on the coordination of legal systems, making systems more uniform and legally secured, and on broadening of the mortgage market. The study indicates that reaching transparency will be both complex and take time.

Originality/value – The paper identifies different dimensions of transparency in residential real estate transactions and brings into focus the issues that are important for increasing transparency.

Keyword
Residential housing market, property transaction real estate, real, transparency Paper type Research paper
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-48739 (URN)
Note

QCR 20161212

Available from: 2011-11-23 Created: 2011-11-23 Last updated: 2017-12-08Bibliographically approved
4. Transparency in the EU’s Residential Housing Market: A study of seven countries
Open this publication in new window or tab >>Transparency in the EU’s Residential Housing Market: A study of seven countries
2011 (English)Report (Refereed)
Abstract [en]

Purpose – The purpose of this study is to seek a further understanding of the issue of transparency in the residential property transaction market and to try to identify the state of transparency on the basis of a number of selected EU-countries: Sweden, Denmark, England and Wales, Germany, Poland, France and Spain, according to five dimensions, when carrying out cross-border housing transactions. The hypothesis is that the EU is far from transparent in this respect, and that the road to transparency will be long and winding. The purpose is also to identify the steps that are needed to enhance the transparency.

Design/methodology/approach – The paper is based the studies of written sources on the seven countries with respect to these five dimensions. Both primary sources such as legislation, and secondary sources such as literature, reports and information on the webpages of those countries, the home pages of professional branch organisations and other authorities, have been studied. A multiple case study research strategy is applied.

Findings – Based on this study, the state of transparency is identified. The essential points are that some of the aspects analysed in the study are far from transparent while others may be considered as relatively transparent. The extent to which the Internal Market may be considered as transparent is related in some way to the definition given to transparency. Something may be considered as transparent based on certain criteria but not on others, particularly when the concept is a relative one and subject to changes. The study raises certain key aspect as a basis for a discussion on encouraging transparency. The study indicates that a primary objective in seeking to improve transparency would be for Denmark to remove rules on the ownership of holiday homes, which make it difficult to acquire a secondary home in Denmark.

Originality/value – The study addresses the issues of transparency in real property transactions by providing an analysis of various aspects of a transaction.

Publisher
162 p.
Keyword
Residential transaction, housing market, real estate/property transaction, transparency.
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-48740 (URN)
Note
QC 20111123Available from: 2011-11-23 Created: 2011-11-23 Last updated: 2011-11-23Bibliographically approved

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