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Motivated Sellers in the Housing Market

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Abstract

We present a search-and-matching model of the housing market where potential buyers' willingness to pay is private information and sellers may become desperate as they are unable to sell. A unique steady state equilibrium exists where desperate sellers offer sizeable price cuts and sell faster. If the number of distressed sales rises then even relaxed sellers are forced to lower their prices. Buyers, on the other hand, become more selective and search longer for better deals. The model yields a theoretical density function of the time-to-sale, which is positively skewed and may be hump-shaped. These results are consistent with recent empirical findings.

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  • Selcuk, Cemil, 2010. "Motivated Sellers in the Housing Market," Cardiff Economics Working Papers E2010/2, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2010/2
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    References listed on IDEAS

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    More about this item

    Keywords

    housing; private information; random search; motivated sellers;
    All these keywords.

    JEL classification:

    • D39 - Microeconomics - - Distribution - - - Other
    • D49 - Microeconomics - - Market Structure, Pricing, and Design - - - Other
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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