Sellers age 70 and over obtain less for their homes than those who are younger, partially because their houses are in poor shape, and partly because they are taken advantage of by real estate professionals.
That’s the finding of new research by the Center for Retirement Research at Boston College. The study is based on a comprehensive analysis of age-related disparities in home-sale returns.
An 80-year-old seller realizes about 0.5% per year less than a 45-year-old, which corresponds to a 5%-lower sales price for a home with a median holding period of 11 years, the study found. On the typical home price of $400,000, this reduction amounts to a loss of approximately $20,000.
“Two factors contribute to this outcome,” according to the study’s authors, Philip Strahan and Zhang Song. “First, homes sold by older people are less likely to be well-maintained. Second, older sellers are more likely to sell their homes off-MLS and sell to investors.”
Without controlling for variables to “hold everything else constant,” the study shows the penalty in annual returns is -1.13%. Adding zip code, buy year, sell year, and their interactions reduces the penalty to -0.74.
Furthermore, adding gender, race and ethnicity further cuts the shortfall to -0.67. And incorporating an indicator for year built, holding period, and cash sales reduces the penalty to -0.59 lower returns per year.
“This analysis provides the first comprehensive evidence that older people receive lower returns when they sell their homes,” the report maintains. “The age gap emerges at age 70 and then increases with each additional year of seller.”
The exercise focuses on sales offered through the MLS — where more details about properties are available — to test whether differences in renovations and/or maintenance help explain the age gap. Beyond the textual analysis, the MLS sample identifies transactions associated with dual agency, whereby the same agent receives fees on both the sell-side and the buy-side.
The authors found that houses sold by the youngest people exhibited the highest level of upkeep. But “most strikingly,’ they said, the worst houses increased sharply among the oldest sellers.
“The question is how property quality and dual agency affect the relationship between seller age and returns,” Strahan and Song write. “Answering this question involves focusing on the subsample of MLS sales and estimating a regression that relates sale price to the dual agency and house quality variables in addition to all the personal control variables described earlier.”
The study shows that both high positive and high negative ratings help explain returns, with the other three indicators having relatively little impact.
“Adding the quality indicators to the model reduces the age coefficient by about 10% because older sellers on average have properties with fewer major improvements and poorer maintenance,” the authors say. “In short, the condition of the property matters a lot.”
But so does listing off market.
“Listing privately can negatively affect the final price,” they maintain.
The most obvious reason is that fewer people know the property is for sale. But less obvious, “sellers are exposed to some agents’ non-profit maximizing efforts, such as encouraging seniors to sell to developers or investors “so that they can receive higher fees via dual agency.”
Strahan and Song found that the oldest cohort is 2.3% more likely to sell off-MLS than sellers in the reference group and 2.7% more likely to sell to an investor. Further results, moreover, show that sales to investors are more likely when transactions are off-MLS; and this effect is much larger for older sellers.
They also discovered that sellers who market off-MLS or sell their properties to investors receive lower returns than sellers who go through the MLS. Worse, these effects are much larger for older sellers.
“In all, an elderly seller who sells off-MLS or to an investor receives returns that are about 1% lower than a middle-aged seller; this penalty is cut in half if the elderly seller lists their property on the MLS platform and sells to a non-investor,” they say.
