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List Prices, Sale Prices and Marketing Time: An Application to U.S. Housing Markets

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  • Donald R. Haurin
  • Jessica L. Haurin
  • Taylor Nadauld
  • Anthony Sanders

Abstract

Many goods are marketed after first stating a list price, with the expectation that the eventual sales price will differ. In this article, we first present a simple model of search behavior that includes the seller setting a list price. Holding constant the mean of the buyers’ distribution of potential offers for a good, we assume that the greater the list price, the slower the arrival rate of offers but the greater is the maximal offer. This trade-off determines the optimal list price, which is set simultaneously with the seller's reservation price. Comparative statics are derived through a set of numerical sensitivity tests, where we show that the greater the variance of the distribution of buyers’ potential offers, the greater is the ratio of the list price to expected sales price. Thus, sellers of atypical goods will tend to set a relatively high list price compared with standard goods. We test this hypothesis using data from the Columbus, Ohio, housing market and find substantial support. We also find empirical support for another hypothesis of the model: atypical dwellings take longer to sell.

Suggested Citation

  • Donald R. Haurin & Jessica L. Haurin & Taylor Nadauld & Anthony Sanders, 2010. "List Prices, Sale Prices and Marketing Time: An Application to U.S. Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 659-685, Winter.
  • Handle: RePEc:bla:reesec:v:38:y:2010:i:4:p:659-685
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    File URL: http://hdl.handle.net/10.1111/j.1540-6229.2010.00279.x
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    References listed on IDEAS

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    1. John R. Knight & C.F. Sirmans & Geoffrey K. Turnbull, 1994. "List price signaling and buyer behavior in the housing market," Proceedings, Federal Reserve Bank of Philadelphia, pages 177-195.
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    Cited by:

    1. de Wit, Erik R. & Englund, Peter & Francke, Marc K., 2013. "Price and transaction volume in the Dutch housing market," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 220-241.
    2. de Wit, Erik R. & van der Klaauw, Bas, 2013. "Asymmetric information and list-price reductions in the housing market," Regional Science and Urban Economics, Elsevier, pages 507-520.
    3. Cardella, Eric & Seiler, Michael J., 2016. "The effect of listing price strategy on real estate negotiations: An experimental study," Journal of Economic Psychology, Elsevier, pages 71-90.
    4. Jack Corgel & Crocker Liu & Robert White, 2015. "Determinants of Hotel Property Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 51(3), pages 415-439, October.
    5. repec:kap:jrefec:v:55:y:2017:i:2:d:10.1007_s11146-016-9555-2 is not listed on IDEAS
    6. Peyman Khezr & Flavio Menezes, 2015. "Dynamic and static asking prices in the Sydney housing market," Discussion Papers Series 538, School of Economics, University of Queensland, Australia.
    7. Han, Lu & Strange, William C., 2016. "What is the role of the asking price for a house?," Journal of Urban Economics, Elsevier, vol. 93(C), pages 115-130.
    8. Peyman Khezr & Flavio M. Menezes, 2016. "Dynamic and Static Asking Prices in the Sydney Housing Market," The Economic Record, The Economic Society of Australia, vol. 92(297), pages 209-221, June.
    9. Rosane Hungria-Gunnelin, 2013. "Impact of Number of Bidders on Sale Price of Auctioned Condominium Apartments in Stockholm," International Real Estate Review, Asian Real Estate Society, vol. 16(3), pages 274-295.
    10. Eli Beracha & Michael Seiler, 2014. "The Effect of Listing Price Strategy on Transaction Selling Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 49(2), pages 237-255, August.
    11. Jun Chen & Ronald Rutherford, 2012. "Quality & Time-on-the-Market in Residential Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 414-428, April.
    12. Haurin, Donald & McGreal, Stanley & Adair, Alastair & Brown, Louise & Webb, James R., 2013. "List price and sales prices of residential properties during booms and busts," Journal of Housing Economics, Elsevier, vol. 22(1), pages 1-10.
    13. Crocker H. Liu & Adam Nowak & Stuart Rosenthal, 2014. "Bubbles, Post-Crash Dynamics, and the Housing Market," Working Papers 14-18, Department of Economics, West Virginia University.
    14. Shimizu, Chihiro & Nishimura, Kiyohiko G. & Watanabe, Tsutomu, 2016. "House prices at different stages of the buying/selling process," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 37-53.
    15. Diewert, W. Erwin & Nishimura , Kiyohiko & Shimizu, Chihiro & Watanabe, Tsutomu, 2014. "Residential Property Price Indexes for Japan: An Outline of the Japanese Official RPPI," Economics working papers erwin_diewert-2014-17, Vancouver School of Economics, revised 27 Mar 2014.
    16. repec:kap:jrefec:v:55:y:2017:i:2:d:10.1007_s11146-016-9558-z is not listed on IDEAS
    17. Carrillo, Paul E. & Pope, Jaren C., 2012. "Are homes hot or cold potatoes? The distribution of marketing time in the housing market," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 189-197.
    18. Liu, Crocker H. & Nowak, Adam & Rosenthal, Stuart S., 2016. "Housing price bubbles, new supply, and within-city dynamics," Journal of Urban Economics, Elsevier, vol. 96(C), pages 55-72.
    19. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, Elsevier.

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