investors with lower search costs, and therefore will tend to overpay on average.

Lambson, McQueen and Slade (2004) identify three factors that contribute to observed

premiums: biased beliefs, high search costs and time pressure, namely the haste

associated with out-of-state buyers. Their paper examines 2,854 apartment sales in

Phoenix during 1990 mid 2002 and finds a 5 7 percent premium associated with

purchases by out-of-state buyers. One limitation of the Lambson, McQueen and Slade

study is that it is based on one market and one property type. Therefore, it is not clear to

what extent their findings carry over to other property types and markets. The objective

of this paper is to examine not only whether there is any price premium associated with

purchases by out-of-state buyers, but also to establish to what extent such premiums vary

across markets and by property types.

 Condominium Conversion

 The conversion of rental properties to condominium ownership have been very

popular in the recent past, induced by increasing house prices and lagging rent levels.

This trend is expected to slow or be reversed in 2006 given an oversupply of condos and

shortage of apartments in some markets. In competitive markets the motivation of the

condo converter should not have an impact on sales prices. However, as Lambson,

McQueen and Slade (2004) point out "apartment complexes trade infrequently with high

transaction costs... and real estate buyers have heterogeneous information" (p. 86).

Therefore, an investor that is buying a multifamily property with the objective of

converting its units to condos may be willing to pay a premium because of the expected

higher price he will net per condo sold.