replacement property exchanges and is larger than predicted net benefits from a tax-

deferred exchange, based on the simulation analysis in Chapter 5.

 In contrast, based on the simulation analysis with a holding period of less than 10

years, both for the relinquished and the replacement property, the net benefit from

exchange is 8.46 percent of price, at most. This value is achieved when assuming annual

appreciation of 20 percent, and 20 percent capital gain tax rate. Increasing both holding

periods to 20 years yields a maximum price benefit of less than 12 percent. Finally, if an

investor exchanges a fully depreciated property and holds the replacement property for

another 39 years, the price benefit of this strategy is only about 14 percent. This clearly

shows that investors pay a premium in exchanges that is larger than any predicted benefit,

especially when they have a short-term investment horizon.

 The implied percentage effects of relinquished exchanges on selling price are on

average 19.57 percent. The implied price effects, when this variable is significant are

smaller than the effects associated with replacement exchanges. The price premium

associated with a sale being part of both replacement and relinquished exchanges ranges

from 22.65 percent in Los Angeles to 49.39 percent in Dallas.

 Retail purchases by out-of-state buyers are associated with a price premium ranging

from 9.82 percent in Las Vegas to 51.21 percent in Dallas. Dallas is also the market with

the highest price premium associated with out-of-state buyers of office real estate. The

average price premium associated with this type of transaction is 28.29 percent. The

coefficient is significant in 9 out of the identified 11 markets of interest. These results

present strong evidence that there is a significant price premium associated with

purchases by out-of-state buyers.