example, more than half of all transactions are concentrated in less than 10 markets and

the top 20 markets account for 86 percent of all sales.

 Table 4 also contains the percentage of exchanges observed in each market, as well

as the breakdown of the type of exchanges observed: relinquished, replacement,

relinquished and replacement, direct swaps, and other types. Table 4 clearly shows that

the use of exchanges varies substantially across the major markets. Importantly, in eight

markets (Marin-North SF Bay Area, Portland, Reno, Sacramento, San Diego, San

Francisco, San Jose and Seattle) exchanges represent the dominant form of property

transaction. Interestingly, all of these markets are located in the Western U.S., and most

are in California. This is consistent with anecdotal evidence that exchanges are more

common on the West Coast.

 One factor cited for the wider use of Section 1031 exchanges in the Western US is

that exchanges are related to the "real estate booms in the West in the 1960s, 1970s and

1980s, which made investors more entrepreneurial" (McLinden, 2004). Another possible

explanation is the rapid appreciation of real estate in major metropolitan areas in

California in the last few years. Anecdotal evidence suggests that homes have appreciated

at an annual rate of 20 percent in Southern California over the last five years. In the other

major markets tracked by CoStar, exchanges have been much less prominent. For

example, over the 1999-2005 time period, only 1.6 percent of apartment sales in New

York involved an exchange.

 The distribution of exchange types of shows that the number of relinquished and

replacement exchanges by markets is quite similar. This is expected, since for each

exchange involving a relinquished property, there should be at least one replacement