IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v89y2013icp76-92.html
   My bibliography  Save this article

A homeowner's dilemma: Anchoring in residential real estate transactions

Author

Listed:
  • Bucchianeri, Grace W.
  • Minson, Julia A.

Abstract

We examine whether, and how, listing strategies impact sale prices in residential home sales. Literatures in housing economics, negotiations, and auctions offer diverse predictions around this question. On the one hand, housing studies typically treat home prices as an objective function of property and neighborhood characteristics. Yet, the large and robust literature on anchoring effects (Tversky and Kahneman, 1974) suggests a positive relationship between listing prices and sale prices. Finally, evidence from the auctions literature suggests the opposite pattern through herding behaviors. We analyzed more than 14,000 transactions, taking into account observable property heterogeneity, geographical location and timing of the sales. We find that higher starting prices are indeed associated with higher selling prices, consistent with anchoring. For the average home in our sample, over-pricing between 10 and 20% leads to an increase in the sale price of $117–$163. This effect is particularly strong in areas with higher rates of mortgage foreclosure or serious delinquency. Additional analyses show that our results are unlikely to be driven by seller motivations or unobserved home qualities. We contrast our findings with recommendations and private beliefs of real estate agents, who provide services and advice for about 90% of home sales in the US.

Suggested Citation

  • Bucchianeri, Grace W. & Minson, Julia A., 2013. "A homeowner's dilemma: Anchoring in residential real estate transactions," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 76-92.
  • Handle: RePEc:eee:jeborg:v:89:y:2013:i:c:p:76-92
    DOI: 10.1016/j.jebo.2013.01.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016726811300019X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Steven D. Levitt & Chad Syverson, 2008. "Market Distortions When Agents Are Better Informed: The Value of Information in Real Estate Transactions," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 599-611, November.
    2. Green, Donald & Jacowitz, Karen E. & Kahneman, Daniel & McFadden, Daniel, 1998. "Referendum contingent valuation, anchoring, and willingness to pay for public goods," Resource and Energy Economics, Elsevier, vol. 20(2), pages 85-116, June.
    3. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    4. Sheppard, Stephen, 1999. "Hedonic analysis of housing markets," Handbook of Regional and Urban Economics,in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 41, pages 1595-1635 Elsevier.
    5. Anglin, Paul M & Arnott, Richard, 1991. "Residential Real Estate Brokerage as a Principal-Agent Problem," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 99-125, June.
    6. Curtis R. Taylor, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 555-578.
    7. Northcraft, Gregory B. & Neale, Margaret A., 1987. "Experts, amateurs, and real estate: An anchoring-and-adjustment perspective on property pricing decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 39(1), pages 84-97, February.
    8. Uri Gneezy, 2005. "Step-Level Reasoning and Bidding in Auctions," Management Science, INFORMS, vol. 51(11), pages 1633-1642, November.
    9. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    10. Gneezy, Uri & Smorodinsky, Rann, 2006. "All-pay auctions--an experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 255-275, October.
    11. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March.
    12. Ronald Rutherford & Abdullah Yavas, 2012. "Discount Brokerage in Residential Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(3), pages 508-535, September.
    13. Thomas J. Miceli, 1991. "The Multiple Listing Service, Commission Splits, and Broker Effort," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(4), pages 548-566.
    14. Ku, Gillian & Malhotra, Deepak & Murnighan, J. Keith, 2005. "Towards a competitive arousal model of decision-making: A study of auction fever in live and Internet auctions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 96(2), pages 89-103, March.
    15. David Geltner & Brian D. Kluger & Norman G. Miller, 1991. "Optimal Price and Selling Effort from the Perspectives of the Broker and Seller," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(1), pages 1-24.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Holst, Gesa Sophie & Hermann, Daniel & Musshoff, Oliver, 2015. "Anchoring effects in an experimental auction – Are farmers anchored?," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 106-117.
    2. Meub, Lukas & Proeger, Till, 2016. "Are groups 'less behavioral'? The case of anchoring," Center for European, Governance and Economic Development Research Discussion Papers 188 [rev.], University of Goettingen, Department of Economics.
    3. Meub, Lukas & Proeger, Till & Bizer, Kilian, 2013. "Anchoring: A valid explanation for biased forecasts when rational predictions are easily accessible and well incentivized?," Center for European, Governance and Economic Development Research Discussion Papers 166, University of Goettingen, Department of Economics.
    4. Gergaud, Olivier & Plantinga, Andrew J. & Ringeval-Deluze, Aurelie, 2015. "Anchoring and Property Prices: The Influence of Echelle Des Crus Ratings on Land Sales in the Champagne Region of France," Working Papers 231136, American Association of Wine Economists.
    5. repec:eee:jeborg:v:141:y:2017:i:c:p:164-176 is not listed on IDEAS
    6. Jianping GU & Yasushi ASAMI, 2016. "Optimal List Price And Duration Of Vacancy In The Housing Market In Tokyo," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 28(3), pages 182-201, November.
    7. Jetter, Michael & Walker, Jay K., 2016. "Anchoring in Financial Decision-Making: Evidence from the Field," IZA Discussion Papers 10151, Institute for the Study of Labor (IZA).
    8. Shi, Song & Yang, Zan & Tripe, David & Zhang, Huan, 2015. "Uncertainty and new apartment price setting: A real options approach," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 574-591.
    9. 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.
    10. Gergaud, Olivier & Plantinga, Andrew J. & Ringeval-Deluze, Aurelie, 2017. "Anchored in the past: Persistent price effects of obsolete vineyard ratings in France," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 39-51.
    11. Meub, Lukas & Proeger, Till E., 2015. "Anchoring in social context," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 29-39.
    12. repec:kap:jrefec:v:55:y:2017:i:2:d:10.1007_s11146-016-9558-z is not listed on IDEAS
    13. Meub, Lukas & Proeger, Till, 2014. "Are groups 'less behavioral'? The case of anchoring," Center for European, Governance and Economic Development Research Discussion Papers 188, University of Goettingen, Department of Economics.
    14. Eva M. Berger & Felix Schmidt, 2017. "Unburden Renters by Making Landlords Pay the Commission? Evaluating a Policy Reform in Germany," Working Papers 1716, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    15. Meub, Lukas & Proeger, Till, 2014. "An experimental study on social anchoring," Center for European, Governance and Economic Development Research Discussion Papers 196, University of Goettingen, Department of Economics.
    16. Anenberg, Elliot & Laufer, Steven, 2014. "Using Data on Seller Behavior to Forecast Short-run House Price Changes," Finance and Economics Discussion Series 2014-16, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    Keywords

    Anchoring; Behavioral economics; Housing; Listing prices;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • Y80 - Miscellaneous Categories - - Related Disciplines - - - Related Disciplines

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:89:y:2013:i:c:p:76-92. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jebo .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.