In comparison, the simulation analysis discussed in Chapter 5 predicts that when

the holding period, both for the relinquished and replacement property, does not exceed 5

years, the observed incremental NPV from a 1031 exchange is 1 4 percent. With a 10

year holding period, the incremental NPV increases to 4 8 percent, depending on the

assumptions for the other key variables. Finally, with a 20 year holding period

incremental value from using an exchange ranges from 4.8 to 10 percent. Therefore,

participants in tax-delayed exchanges that have a short-term investment horizon need to

be very careful, since the wealth that they lose in the form of a higher replacement

property price may offset, in whole or in part, the gain from the deferment of taxes.

 Out-of-state buyers are associated with a price premium of 11.61 percent in

Phoenix and 21.77 percent in Tucson. Condominium conversions are associated with a

price premium of 16.37 percent of sales price in San Diego. Finally, portfolio sales result

in 8.99 percent higher prices in NYC, a 16.10 percent increase in price in Chicago and a

14.79 percent positive impact on price in San Francisco.

 Robustness of Results

 Omitted Variables Issues

 As noted previously there is a concern that coefficient estimates may be biased due

to omitted variables. The magnitude of the coefficients of the variable representing a

relinquished exchange (EXRELQ) clearly shows that properties that become part of

relinquished exchanges may have some extraordinary characteristics which are not

captured by the variables in the model. I follow the Haurin (1988) and Glower, Haurin

and Hendershott (1998) approach to form a variable that controls for unusual