Publication Type

Working Paper

Publication Date



Using unique data on condominium transactions that allow for accurately-measured capital gains and losses, we examine the impact of these gains and losses on homeowner decisions. As predicted by the disposition effect, owners with a gain have higher sell propensities than those with a loss. Since real estate prices result from owner negotiations with buyers and tenants, we also examine whether prices vary across otherwise comparable units depending on the owner’s capital gain. We report that owners with a gain accept lower selling prices, list for sale at lower prices, and accept lower rents from tenants. These pricing implications are sensitive to the magnitude of the owner’s gain, which is consistent with realization utility, and are economically large. For example, selling prices are 5% lower on average. Overall, our findings indicate that the disposition effect and realization utility, both of which originate from prospect theory, influence homeowner decisions. Alternative explanations such as financing constraints, informed trading, and mean reversion cannot explain our results


Disposition Effect, Realization Utility, Prospect Theory, Real Estate



Research Areas