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Presale agreements have become a pervasive worldwide practice for residential sales, especially in many Asian markets. Although there is a burgeoning empirical literature on presales agreements, only a few papers actually address their theoretical foundations. We create a set of interrelated theoretical models for explaining how and why developers and buyers engage in presale contracts for non-completed residential dwellings. Given heterogeneous consumer beliefs about future market prices, developers and buyers enter into presale agreements to mitigate, two intertwined, fundamental risks: those of real estate market valuation and default. Our analyses are consistent with prior empirical findings and provide additional theoretical insights for understanding the market for presales.


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© Springer. Final version published as: Edelstein, R., Liu, P., & Wu, F. (2012). The market for real estate presales: A theoretical approach. Journal of Real Estate Finance and Economics, 45, 30-48. Reprinted with permission. All rights reserved.

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