Strategic Relevance of Due Diligence Real Estate – An Integrated Transaction Cost Theory Approach
||Strategic Relevance of Due Diligence Real Estate – An Integrated Transaction Cost Theory Approach
||22nd Annual European Real Estate Society Conference in Istanbul, Turkey
||The subprime mortgage crisis caused significant damage to the international real estate market. Did the crisis teach us anything? In practice, yes. For one, examinations in the form of due diligence of real estate assets have become more frequent and more thorough. Activities on the real estate market in Germany are recovering robustly and have almost reached pre-crisis levels. Thus, the practice of due diligence is increasing correspondingly.__However, the literature on due diligence real estate is still exiguous and lacks outright theoretic approaches. This thesis investigates the relevance of due diligence within real estate transactions by contextualizing it within integrated Transaction Cost Theory approaches and its behavioral assumptions. Transaction-cost and agency-theory parameters such as bounded rationality, opportunism and uncertainty offer approaches for describing how due diligence reduces information asymmetries, uncover hidden characteristics, and therefore prevent adverse selection. The conducted multi-method qualitative study affirms the strategic relevance of due diligence within real estate transactions. It indicates that due diligence is fundamental and serves to minimize risks by reducing information asymmetries.__The main finding is that shorter portfolio life-cycles and the growing trend towards outsourcing indicate clearly that the asset real estate is becoming a commodity. The relevance of due diligence real estate is therefore also gaining. In times of high volatility and uncertainty, a reduction of information asymmetry is highly desirable.
||Due Diligence Real Estate, Asymmetric Information, Transaction Cost Theory, Hidden Characteristics, Uncertainty
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||International Real Estate
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