Estimating the Effect of Crime Risk on Property Values and Time on Market : Evidence from Megan’s Law in Virginia

We examine neighborhood externalities that arise from the perceived risk associated with the proximity of a registered sex offender's residence. We find large negative externality effects on a property's price and liquidity, employing empirical techniques that include a fixed-effects OLS model, a correction for sample selection bias and censoring using a Heckman treatment, and a 3SLS model to account for simultaneity bias in the joint determination of a home's sale price and liquidity. Additionally, we find amplified effects for homes with more bedrooms (a proxy for children) and if the nearby offender is designated by the state as “violent.”