Study Calculates Direct and Indirect Expenditures Related to an Illinois Home Sale

When a family or individual purchases a home, there are direct and indirect ripple effects in the state and local economies. With any home purchase, there is more to the buyer’s and seller’s expenditures than the mortgage payment and closing costs. There are fix-up costs and replacement of household items, moving expenses and the purchase of new furniture just to name a few. None of these expenditures would take place if it were not for the sale and purchase of a home.

The Illinois Association of REALTORS® wanted to look closely at this—just how much is spent by the seller and the buyer in the average Illinois home sale? Using Advocacy Program funds, IAR commissioned a study to examine the expenses that buyers and sellers incurred in conjunction with the purchase of an average priced home in Illinois in 2010. The study further reviews the direct and indirect economic results of these expenditures made by a seller and a buyer in a single residential transaction.

Part II of the study analyzes the direct and indirect expenditures for 11 regional MSAs (metropolitan statistical areas). The studies will be used to promote the economic importance of the Illinois housing market in IAR dealings with leaders in local and state government.

Direct Expenditures

  • Expenditures to prepare a home for sale by the seller (e.g., repairs, home improvements).
  • A buyer will spend money after they purchase a home on remodeling, new furnishings and household items.
  • Both parties in the home sale transaction may hire professional service providers such as attorneys and real estate professionals, as well as incur fees from home inspectors, appraisers and the title company and pay taxes to local, county and state government agencies.
  • Categories: Construction, Retail Trade, Transportation, Finance/Insurance/Real Estate/Professional Services, Public Administration

Indirect Expenditures
Ripple Effects – or multiplier effect: How money spent in one industry goes to other industries which in turn is spent in various other industries, and so forth.

The research really underscores the importance of the housing market on the health of the overall Illinois economy.

  • If there are fewer home sales in a given year, there will be an impact across many related industries and the economy.
  • Stronger private sector job growth and improved consumer confidence are paramount to a housing market recovery.
  • Preserving the mortgage interest deduction (MID) and improving liquidity in the lending market will help a housing market recovery and the economy; federal proposals to eliminate MID or require a 20 percent down payment for a Qualifed Residential Mortgage (QRM) will negatively impact the housing market. 

Study Methodology
For the study RCF Economic and Financial Consulting (RCF) surveyed 415 recent buyers and sellers of existing homes (no new construction), as well as a survey of title companies, research reports other data sources. IAR homes sales data was used for the one-year period 4Q09 to 3Q10. An input-output model developed by the University of Illinois Regional Economics Applications Laboratory (REAL) was used to quantify the “ripple effects” or multiplier effect on the economy (how money spent in one industry goes to other industries which is spent in various other industries). The homebuyer/seller survey was sent to people identified in county recorder of deeds offices as the new owners of homes transacted within the previous 12 months.

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