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Market Thinness, List Price Revisions and Time to Sell: Evidence from a large-scale housing dataset

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  • Marco Hoeberichts
  • Maarten van Rooij
  • Arjen Siegmann

Abstract

This paper uses a large dataset, covering more than 70% of the Dutch housing market, to analyze the relationship between market thinness, price setting behavior and time to sell. Our findings confirm the typical result that overpricing increases the time on market. In addition, we find evidence of quicker list price reductions suggesting that overpricing is part of a strategy to search for the opportunity of high revenues and to learn about the market. Moreover, we are able to confirm the theory put forward by Lazear (1986) on the relation between atypical goods and the speed of price adjustments. Sellers of atypical houses are more uncertain about the price buyers want to pay and take time to learn about the market, thereby increasing the expected time on market and the time to price revisions. Market liquidity has a positive, i.e. shortening, effect on the time to sale and leads to quicker price revisions due to the increased opportunities for learning.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 176.

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Date of creation: May 2008
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Handle: RePEc:dnb:dnbwpp:176

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Related research

Keywords: market liquidity; pricing strategies; marketing time; overpricing; housing;

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  1. Geoffrey K. Turnbull & Jonathan Dombrow & C.F. Sirmans, 2006. "Big House, Little House: Relative Size and Value," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 439-456, 09.
  2. Donald Haurin, 1988. "The Duration of Marketing Time of Residential Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(4), pages 396-410.
  3. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-69, June.
  4. Gwilym Pryce & Kenneth Gibb, 2006. "Submarket Dynamics of Time to Sale," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(3), pages 377-415, 09.
  5. Gautier, Pieter A & Siegmann, Arjen & van Vuuren, Aico, 2007. "The Effect of the Theo van Gogh Murder on House Prices in Amsterdam," CEPR Discussion Papers 6175, C.E.P.R. Discussion Papers.
  6. David Genesove & Christopher Mayer, 2001. "Loss Aversion And Seller Behavior: Evidence From The Housing Market," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1233-1260, November.
  7. Michel Glower & Donald R. Haurin & Patric H. Hendershott, 1998. "Selling Time and Selling Price: The Influence of Seller Motivation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(4), pages 719-740.
  8. John R. Knight, 2002. "Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(2), pages 213-237.
  9. Rutherford, R.C. & Springer, T.M. & Yavas, A., 2005. "Conflicts between principals and agents: evidence from residential brokerage," Journal of Financial Economics, Elsevier, vol. 76(3), pages 627-665, June.
  10. Sass, Tim R, 1988. "A Note on Optimal Price Cutting Behavior under Demand Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 336-39, May.
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