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The Effects of Charm Listing Prices on House Transaction Prices
Abstract
As is the case for many different goods and services, it is common practice in many real estate markets for sellers to offer properties for sale at listing prices just below some round number price (e.g., 100,000). The academic marketing literature refers to this practice as "charm" pricing and suggests that this strategy is an attempt by sellers to take advantage of buyers' cognitive processes in which charm prices affect buyers' perceptions about the seller or the item being offered for sale. Although numerous papers in the housing economics literature have addressed the impact of the magnitude of listing price on observed house transaction prices, no prior published study has considered the impact of the design of listing prices in housing markets. This paper presents an empirical investigation of the effects of charm pricing on house transaction prices using sample data. The results provide some evidence that houses listed at certain charm prices sell for significantly greater transaction prices than those listed at round number prices. Copyright 2004 by the American Real Estate and Urban Economics Association
... In this industry, odd prices are used more frequently than other prices (Macé, 2012) because they convey favorable perceptions of value, and result in increased demand and sales (Freling et al., 2010). However, research has generally focused on products priced below $100 or €100, with only a few exceptions e.g., in the laptop (i.e., Choi et al., 2014 ;Baumgartner & Steiner, 2007) and housing (i.e., Allen & Dare, 2004) industries. No research has ever been conducted on odd pricing in the luxury industry, for several reasons. ...
... However, we argue that the potential for underestimation is not just a matter of changing the leftmost digit; it can also be due to the crossing of a salient price threshold (Monroe, 1973). Allen and Dare (2004) show the high proportion of listed prices ending not only in 9900 but also in 4900, in the housing market. In line with Dehaene and Mehler's (1992) suggestion that "0" and "5" can both be considered as round numbers because of their high cognitive accessibility, we posit that "5", just like "0", can be considered as a salient threshold. ...
... Note: The credible intervals are available in Table 5. A. Fraccaro et al. the hundreds place has moderate potential for underestimation, but Study 2 did not replicate this result. Managerial practices are inconsistent regarding the fourth and the ninth hundred, as previously observed by Allen and Dare (2004). These practices differ from one product category and one brand to another. ...
Two large samples of prices indicate that odd prices (i.e., prices just below a round number, for example €1495 vs. €1500) are used in the pricing of luxury products. An analysis of price endings suggests that luxury brand managers rely less on the drop-off mechanism than on the meaning mechanism, both of which have been used to show that odd prices influence consumers in the Fast-Moving Consumer Goods (FMCG) industry. Building on the odd-ending price justification effect, a conjoint analysis, indicating that a large proportion of luxury consumers prefer odd prices, supports the likely role of a guilt-relief mechanism in the pricing of luxury products.
... Therefore, our results are consistent with studies from other fields that advocate "just below" as the superior pricing strategy. Allen and Dare (2004) and Palmon et al. (2004) examine the effect of pricing strategies on final transaction prices in a residential real estate setting and find conflicting results. The current investigation seeks to build on these two studies and contribute to the existing literature on optimal list pricing in five important ways. ...
... While many papers in real estate examine residential listing prices from a valuation perspective (Miller and Sklarz 1987;Northcraft and Neale 1987;Haurin 1988;Horowitz 1992;Knight et al. 1994;Yavas and Yang 1995;Arnold 1999;Anglin et al. 2003;Haurin et al. 2010, andDeng et al. 2013, among others), only two papers to date explore how asking prices from a design and pricing strategy perspective may relate to residential real estate transaction prices. Allen and Dare (2004) examined prices in the south Florida market and found that what they call "charm pricing" leads to higher final sale prices. The opposite result was found in Palmon et al. (2004) who examined Texas residential real estate prices. ...
... We define the most effective pricing strategy as the one that results in the shortest time on the market and that captures the highest transaction price after controlling for the true underlying value of the home. Using a more comprehensive dataset and a different empirical approach, we attempt to reconcile the conflicting results presented by Allen and Dare (2004) and Palmon et al. (2004). ...
While true underlying home values are expected to be randomly distributed, actual residential listing prices tend to be highly clustered. Particularly, more than 75 % of the homes in our sample are associated with a round or “just below” round asking price. This study provides a theoretical and empirical examination of how the thousands digit in a home’s asking price is related to the final transaction price relative to its true underlying value. Our findings suggest that, on average, homes listed using a “just below” pricing strategy are associated with the greatest discount negotiated relative to the asking price. However, the higher initial degree of list overpricing reflected in “just below” pricing compared with other strategies more than offsets the greater discount. Therefore, “just below” is the most effective pricing strategy for the seller in terms of a greater dollar yield relative to value. These empirical findings have economic significance and are robust across both “buyer” and “seller” housing markets, new versus existing homes, and across multiple home price ranges.
... Instead, prices are listed at slightly lower than round numbers (e.g., $299,900 vs. $300,000). Rationally, this $100 should have almost no impact on homebuyer opinion of value, yet Allen and Dare (2004) have shown it to be an effective pricing strategy. In opposition to Allen and Dare (2004), the results of the current study support the findings of Palmon, Smith, and Sopranzetti (2004) in that charm pricing is found to work against the seller. ...
... Rationally, this $100 should have almost no impact on homebuyer opinion of value, yet Allen and Dare (2004) have shown it to be an effective pricing strategy. In opposition to Allen and Dare (2004), the results of the current study support the findings of Palmon, Smith, and Sopranzetti (2004) in that charm pricing is found to work against the seller. When coupled with the finding that homebuyers spend the greatest amount of time looking at the first home that results from their search, the results do not support the use of charm pricing strategies. ...
... While several studies, such as Miller and Sklarz (1987), Kang and Gardner (1989), Asabere, Huffman, and Mehdian, (1993), Knight, Sirmans, and Turnbull (1994), and Benjamin and Chinloy (2000), have examined the relationship between list price and sales price in a macro sense, only two studies have directly examined charm pricing in residential real estate. Allen and Dare (2004) examined transactions in south Florida and found charm pricing in listed properties to lead to higher transaction prices. In direct contrast to their study, Palmon, Smith, and Sopranzetti (2004) found the opposite result when examining price behavior in Texas. ...
We track and record five measures of eye movements of current homebuyers who are in the process of searching for homes on the Internet. Total dwell time (how long a person looks at the photo), fixation duration (how long a person spends at each focal point), and saccade amplitude (the average distance between focal points) are all found to significantly explain a buyer’s overall opinion of the home and its value. A secondary finding is that the sections of the Webpage that are viewed first are the photo of the home, the quantitative description section, distantly followed by the real estate agent remarks section. Finally, charm pricing, the marketing technique where agents list properties at slightly less than round numbers, works in opposition to its intended effect. Given our result that homebuyers dwell significantly longer on the first home they see, and since charm pricing typically causes a property to appear towards the end of a search when sorted by price from low to high, we question the wisdom of using a charm pricing strategy.
... These amounts are often multiples of "round" numbers, such as $10,000, that serve as cognitively-accessible reference points against which people subjectively judge the quality of their outcomes (e.g., Baillon et al. 2020, Wallace andEtkin 2018). Knowing this, sellers may attempt to attract buyer interest by engaging in psychological "charm-pricing"-listing properties at prices like $349,000 rather than at round prices like $350,000 (Allen & Dare 2004, Basu 1997, Cardella and Seiler 2016, Gendall et al. 1997. This pricing strategy, which relies on people paying heightened attention to the left digits of price and neglecting digits to the right (e.g., Englmaier et al. 2018, Lacetera, Pope, and Sydnor 2012, Sokolova et al. 2020, Thomas and Morwitz 2005, can be so effective that the mere presence of the digit 9 ...
... For example, car valuations are influenced disproportionately more by 10,000 odometer changes than they are by odometer changes that do not change the 10,000 digit (e.g., DellaVigna 2009, Lacetera et al. 2012. This attention to left-side digits largely explains why properties are often originally listed at prices like $189,000 instead of $190,000 (e.g., Allen and Dare 2004). We note that the scale of the prices determines which digit will likely serve as an important round number reference point. ...
This paper examines how people price the resale of durable goods in systematically biased ways. We show across four studies that the anchoring effect of durable goods’ prior sales prices on subsequent valuations is discontinuous at psychologically salient round number reference points (e.g., 349,000) to those at or just above these thresholds (e.g., 10,000 reference point subsequently listed their homes for about 1.8% (over $3,700) less on average than did buyers selling comparable homes who previously paid at or above a round number threshold. This drop is observable controlling for home characteristics and the general relationship between previous and current prices. Three experimental studies looking at housing and used car markets replicate these findings, highlight the mechanism, and increase confidence in causality. Market mechanisms and the negotiation process attenuate discontinuities by about 30%, but lower initial listing prices persist to final sales prices. We find additional weak evidence suggesting that valuator experience may attenuate intergenerational pricing bias.
Conflict of Interest: This manuscript was submitted, revised, and accepted prior to the nomination and appointment of Lamar Pierce as Editor-in-Chief.
Funding: This project was supported by the University of Southern California Marshall School of Business Behavioral Laboratory.
Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2022.1632 .
... 1 In an early article on the importance of round-number categories in number perception (Gabor & Granger, 1964), such an inconsequentially decreased number was referred to as a "just-below-the-round-figure" number or a just-below number. What is considered "inconsequential" does of course depend on the context -for grocery prices, one cent would be inconsequential, but for real estate prices, a hundred dollars could be inconsequential (e.g., Allen & Dare, 2004). ...
... In addition, it has been demonstrated that just-below prices can lower consumers' price recall (Guido & Peluso, 2004;Schindler & Wiman, 1989) and increase the perceived size of price differences (Manning & Sprott, 2009;Sokolova et al., 2020;Thomas & Morwitz, 2005). There have also been a number of demonstrations that giving a product a just-below price can increase the likelihood of the product being purchased (e.g., Schindler & Kibarian, 1996;Stiving & Winer, 1997;Kalyanam & Shively, 1998;Anderson & Simester, 2003;Allen & Dare, 2004;Lee et al., 2009;Beracha and Seiler 2015;Jabor and Jabor 2017). ...
Recent research has shown that health-motivated consumers perceive foods with calorie values just below a round 0-ending number (e.g., with 9 endings) as having relatively fewer calories and thus greater appeal. To the extent that brand managers are aware of this left-digit effect, we might expect to see more food items in the marketplace with just-below calorie values than other calorie values of similar magnitude (e.g., round values and just-above values). Using the on-package calorie values of a large sample of food items from a proprietary food and nutrition database, we find evidence for such strategic management of number endings, but only for healthy food items (i.e., not regular foods). For healthy food items, there are more just-below than round-number calorie values; however, for regular foods, this difference reverses. Further analyses indicate that the same pattern of results is present when just-below calorie values are compared with just-above values. These findings yield important implications for policymakers, manufacturers, and consumers.
... These amounts are often multiples of "round" numbers, such as $10,000, that serve as cognitively-accessible reference points against which people subjectively judge the quality of their outcomes (e.g., Baillon et al. 2020, Wallace andEtkin 2018). Knowing this, sellers may attempt to attract buyer interest by engaging in psychological "charm-pricing"-listing properties at prices like $349,000 rather than at round prices like $350,000 (Allen & Dare 2004, Basu 1997, Cardella and Seiler 2016, Gendall et al. 1997. This pricing strategy, which relies on people paying heightened attention to the left digits of price and neglecting digits to the right (e.g., Englmaier et al. 2018, Lacetera, Pope, and Sydnor 2012, Sokolova et al. 2020, Thomas and Morwitz 2005, can be so effective that the mere presence of the digit 9 ...
... For example, car valuations are influenced disproportionately more by 10,000 odometer changes than they are by odometer changes that do not change the 10,000 digit (e.g., DellaVigna 2009, Lacetera et al. 2012. This attention to left-side digits largely explains why properties are often originally listed at prices like $189,000 instead of $190,000 (e.g., Allen and Dare 2004). We note that the scale of the prices determines which digit will likely serve as an important round number reference point. ...
This paper examines how people price the resale of durable goods in systematically biased ways. We show across four studies that the anchoring effect of durable goods’ prior sales prices on subsequent valuations is discontinuous at psychologically-salient round number reference points (e.g., 349,000) to those at or just above these thresholds (e.g., 10,000 reference point subsequently listed their homes for about 1.8 percent (over $3700) less on average than did buyers selling comparable homes who previously paid at or above a round number threshold. This drop is observable controlling for home characteristics and the general relationship between previous and current prices. Three experimental studies looking at housing and used car markets replicate these findings, highlight the mechanism, and increase confidence in causality. Market mechanisms and the negotiation process attenuate discontinuities by about 30%, but lower initial listing prices persist to final sales prices. We find additional weak evidence suggesting valuator experience may attenuate intergenerational pricing bias.
... Only four papers have done so to date. Allen and Dare (2004) examined prices in the south Florida market and found that what they call ''charm pricing'' leads to higher final sales prices. The opposite result was found by Palmon, Smith, and Sopranzetti (2004), who examined Texas residential real estate prices. ...
... The opposite result was found by Palmon, Smith, and Sopranzetti (2004), who examined Texas residential real estate prices. Allen and Dare (2006) conducted a follow-up study to add clarity to this stream of research by focusing on the signal charm pricing sends in terms of the firmness of the seller's position. Finally, Salter, Johnson and Spurlin (2007) concluded that off-dollar pricing does not affect selling price, but yields a shorter TOM. ...
In this study, we examine whether homebuyers favor homes associated with just below pricing strategies or those with rounded prices (e.g., 200,000). The inclination for just below pricing allows sellers that use just below pricing to set a higher asking price without driving away potential buyers. Rounded priced homes, on the other hand, sell significantly faster and at a smaller discount from list price compared with just
below priced homes. We find that the just below pricing strategy yields the highest transaction price relative to the true underlying home value. This suggests sellers exploit buyers’ preference for just below priced homes with a higher initial listing price that outweighs the lower discount and shorter time on market associated with similar round priced homes, making just below pricing the more effective pricing strategy.
... 8 However, these studies focus primarily on how the magnitude of the list price or relative position of the list price to the fundamental property value or reservation values impact final sale prices and time on the market (as opposed to examining the type of list price strategy employed). 9 A few prior empirical studies look specifically at list price strategies (Allen & Dare, 2004, 2006Palmon et al., 2004;Thomas et al., 2010;Beracha & Seiler, 2014). However, as discussed in the introduction, these empirical studies using transactions data provide challenges in identifying the causal impact of list price strategies. ...
... Therefore, we view this study as an important and necessary complement to the extant empirical literature aimed at advancing our understanding of how list prices impact real estate negotiations. In this paper, our new experimental results, along with the prior empirical findings (see Allen & Dare, 2004, 2006Beracha & Seiler, 2014;Janiszewski & Uy, 2008;Palmon et al., 2004;Thomas et al., 2010), combine to provide a clearer and more robust understanding of how list price strategies impact the real estate negotiation process. ...
When selling a home, an important decision for the home owner is choosing an optimal listing price. This decision will depend in large part on how the chosen list price impacts the post negotiation final sale price of the home. In this study, we design an experiment that enables us to identify how different types of common list price strategies affect housing negotiations. Specifically, we examine how rounded, just below and precise list prices impact the negotiation behavior of the buyer and seller and, ultimately, the final sale price of the home. Our results indicate that the initial list price does play an important role in the negotiation process. Interestingly, these impacts generally attenuate with negotiating experience.
... We focus on the fifth (sixth) digit when we examine six (seven) digit prices as it is the most important clustering digit. The findings in the literature show that the digit of concern changes with the level of prices (for example; Allen and Dare (2004) and Beracha and Seiler (2014(). In line with the literature, when we repeat our analyses with the fourth (fifth) digit for six (seven) digit prices, results omitted for brevity reveal that the findings are similar but less significant. ...
This study examines price clustering in different real estate markets. Using a novel data set, we document that prices are clustered around even figures, and exact prices are not common in the residential, commercial and land markets. Prices increase in multiples of five hundred, five thousand or fifty thousand depending on the market, and particular digits can predict the prices. The magnitude of even pricing is comparable to months’ worth of disposable income and has potential implications on the financial well-being of the market participants.
... We focus on the fifth (sixth) digit when we examine six (seven) digit prices as it is the most important clustering digit. The findings in the literature show that the digit of concern changes with the level of prices (for example; Allen and Dare (2004) and Beracha and Seiler (2014(). In line with the literature, when we repeat our analyses with the fourth (fifth) digit for six (seven) digit prices, results omitted for brevity reveal that the findings are similar but less significant. ...
This study examines price clustering in different real estate markets.
Using a novel data set, we document that prices are clustered around
even figures, and exact prices are not common in the residential,
commercial and land markets. Prices increase in multiples of five
hundred, five thousand or fifty thousand depending on the market, and
particular digits can predict the prices. The magnitude of even pricing is
comparable to months’ worth of disposable income and has potential
implications on the financial well-being of the market participants.
... This, in turn, leads to a lower probability of a sale Additionally, tbere seems to be an ongoing disagreement over the preferred modeling technique with some favoring direct OLS modeling. Munneke and Yavas (2001), Rutherford, Springer, and Yavas (2001), and Allen and Dare (2004) provide a sample of these works. A second group seems to prefer nonlinear modeling techniques, with the Weibull distribution serving as the favorite underlying distributional assumption witbin this group. ...
Miceli (1989), in a search for the optimal time to allow a broker to market property, posits that the principal (seller) may use the length of the listing contract to motivate the agent (listing broker) to better align incentives. Expanding slightly on Miceli, this work predicts that longer time allotted the broker to market residential property will decrease broker effort, resulting in lower search intensity and eventually a longer marketing span for property, ceteris paribus. This prediction is borne out across three empirical modeling methodologies commonly used in time-on-market studies.
... 11 Notably, we use the listing price rather than the actual transaction price to measure the fluctuations of local housing prices because real estate transactions in Xiong'an are prohibited after the announcement, making it impossible to observe the post-announcement housing transaction prices in Xiong'an. Nevertheless, the listing price is considered to effectively reflect home sellers' expectations and contain useful information for forecasting future transaction prices (Allen and Dare, 2004). Figure 2 illustrates the trends of housing listing prices in C3 (solid lines), C9 (dotted lines), and C37 (dashed lines) during the study period. ...
... SeeAllen and Dare (2004),Beracha and Seiler (2015), orRepetto and Solís (2020) for examples.11 We require bins to have at least 10 observations at the discontinuity and 10 observations off the discontinuity. ...
Algorithm-based market valuations for houses, such as the Zillow's Zestimate, impact trading outcomes in the housing market. Sellers who advertise an asking price below their Zestimate increase buyers' search intensity, shorten their time on market, and reduce their sales price, irrespectively of sellers' preferences and home characteristics. Using data about the home selling process on Zillow in the Seattle metropolitan area, we estimate the cost associated with this tradeoff is $3,600 (0.75%) of the house sales price for one fewer day on market. Despite this high cost, we show that it is still rational for a seller to advertise an asking price below the Zestimate if there exists a distance between his reservation value and the Zestimate. Our model implies that heterogeneity in house trading outcomes can arise from homogenous sellers' (mis)fortune in receiving a low or a high Zestimate.
... For example, Allen et al. (2005) find that range pricing does not influence price but does increase time-onmarket. Allen and Dare (2004) find that properties listed at any of the charm prices considered sell at a statistically significant premium versus homes listed at non-charm prices, with some variation noted across lower-priced and higher-priced homes. Palmon et al. (2004) document the opposite relationship between list prices and transaction prices, and they also find that homes listed at non-charm prices sell faster than do homes using the charm pricing strategy. ...
A co-listing strategy exists when two or more listing agents jointly represent the owner of a property who desires to sell it. This strategy is not new in the real estate brokerage industry, but its popularity has increased during recent years with the formation of teams of agents who repeatedly work together using the co-listing strategy. To date, the literature has not analyzed this business strategy. This study investigates the probability of selling, selling price, and time on market effects related to the use of the co-listing strategy. The results of this study indicate that co-listing is associated with a higher probability of sale, an increased selling price, and a marginal longer or shorter marketing time, depending on the situation. Comparing market outcomes for agents who form teams and repeatedly employ the co-listing strategy against market outcomes for agents who are involved in only one co-listing indicates that both types of co-listing produce higher prices and are more likely to result in a sale, but the effects for repeated co-listings are larger in magnitude. Additionally, repeated co-listing slightly reduces marketing time, but single co-listing slightly increases marketing time. The marketing time effects in both repeated and single co-listings, however, are too small to be economically important. In general, this study suggests that sellers are better served by the co-listing strategy compared to no co-listing, especially when the co-listing agents repeatedly work together in teams.
... It has been a long tradition for retailers to establish a price that falls just below a round number, typically with 9 as the most common digit. A variety of terms have been suggested for this convention in pricing, such as charm prices (Allen & Dare, 2004), 99 price ending (Schindler, 2006), just-below price (Schindler et al., 2011) and odd prices (Choi et al., 2014;Schindler & Wiman, 1989). For some terminologies, such as 99 price ending, it is restrictive to double digits and may not encompass other price ending strategies that yield the similar effect in different cultures (e.g. ...
It is not uncommon to see prices that end with a 9 or 99, be it in a restaurant, grocery store, or clothes store. Yet, this convention in pricing is typically found in the US, and evidence of it in the Asian marketplace remains limited. Given this, the present study pioneers an empirical investigation on price ending strategies in Asian marketplaces, particularly in the hospitality industry. Using automated data extraction, a total of 63,075 room rates were sampled from 21 hotels operating in Macau that were advertised online. The digit 8 is the most frequently used price ending, especially by five-star hotels and upper-scale rooms. Conversely, 4 was not the least frequently used price ending. These findings provide guidance to hospitality pricing managers who are not aware of the local culture and the price-ending dynamics of the Asian marketplace.
... For inexpensive products, price endings of "95" may be less effective than endings of "99" and, for expensive products (e.g., $50), price endings of "95" may be more effective (Gendall, Fox & Wilton, 1998;Schindler, 2006). For real estate, pricing just below a whole number ("charm pricing") appears to suggest careful pricing and "firmness" and tends to raise willingness-to-pay (Allen & Dare, 2004;Allen & Dare, 2006;Thomas, Simon & Kadiyali, 2007). Therefore, demand functions may contain positively-sloped segments. ...
Variations in the pricing approaches firms employ may partially explain why observed industry prices appear inconsistent with economic theory. Some firms may use principles developed from psychology that do not fit traditional economic models to enhance their profits beyond the basic solutions from economic theory. This paper describes more than fifty of these principles, dividing them into four categories: framing, congruency, context, and signaling. By studying these principles from psychology, researchers and policy makers can better understand the prices they observe in the marketplace. By following more of these principles, firms may be able to enhance their performance.
Journal of Applied Business and Economics
http://www.na-businesspress.com/JABE/LarsonRB_Web16_1_.pdf
... There are many other pricing techniques based on psychological mechanisms that may influence the WTP. One is the use of charm listing prices, i.e., prices just below some round number price such as; 99.9 instead of 100 [150]. Others are optional product pricing, captive product pricing, by-product pricing, and product bundle pricing that may be used in one way or another for housing sales (see e.g., [151]). ...
This paper investigates the literature and theoretical underpinning of the concept of “willingness to pay” (WTP) for green infrastructure (GI) with consequences for residential development. The benefits of GI in urban settlements include improved air quality, attenuation of the urban heat island, thermal insulation and lower energy bills for green roofs and walls, the creation of social amenity space, a habitat for biodiversity, and stormwater water attenuation. Collectively, these benefits are termed eco-system services and enhance sustainability. The role of GI, the “lungs of the planet”, is heavily correlated to atmospheric conditions; high levels of GI improve air quality, which is acknowledged widely with many cities increasing GI to make them more resilient to future predicted challenges with respect to heat and poor air quality. In addition, there is evidence that the biophilia effect enhances human well-being. There are some studies claiming that purchasers pay a premium for property with good GI. However, there is little research about the process in consumers’ minds leading to such a premium—if, how, when (under what circumstances), and then to what extent are consumers willing to pay for GI. This process, if better understood, may enable sellers or policy makers to influence the amounts of GI in developments, thus making it possible to enhance the value of GI to buyers. There is some research pointing to factors to be considered when modeling such processes. For developers, knowing the optimum amount of GI would enable them to design and construct developments with maximum purchaser appeal. To do this, stakeholders need to predict the level of WTP amongst potential purchasers for which they need to understand the decision processes behind WTP. In this way, sustainability in residential property development could be optimized. The paper analyzes the literature and theories concerning WTP, focusing on dwellings and GI. Our findings are that some quantitative evidence exists that purchasers pay more for residential property with high levels of GI in some cities, but they do so without any understanding of the possible decision processes leading to those premiums (if, how, when, and then to what extent). The paper proposes a comprehensive conceptual model that may explain buyers’ WTP for a dwelling based on a presumed cost–benefit analysis performed by buyers, which has been extended here to include GI and psychological factors. Thus, the paper has a consumer perspective. The model may be used to select variables and test them in empirical studies, and by integrating with other factors in the model, it can attain a more comprehensive understanding of WTP for GI in residential development.
... The second method of quality adjustment used by SNW was based on hedonic regressions. This method is also widely used in constructing quality adjusted house 44 See Allen and Dare (2004), Haurin et al. (2010), Knight et al. (1998). 45 See Mayer (1997, 2001) and Engelhardt (2003). ...
How can a commercial property price index (CPPI) be defined and constructed? And what kind of relationship does the measurement of commercial property’s value have to the System of National Accounts and to concerns about national financial sectors? In order to answer such questions, this paper aims to outline the concepts that can be used to define and measure the value of commercial property, and to clarify the relationship of such measurement to the System of National Accounts and to the financial system.
... Finally, this paper relates to the marketing and real estate literatures on the e ectiveness of just-below pricing strategies (e.g.; Allen and Dare 2004;Thomas and Morwitz 2005; and see Han and Strange 2015 for a review on several economic aspects of the housing market). Most empirical studies from the housing market use data from negotiations and not from auctions. ...
Do behavioral biases affect prices in a high-stakes market? We study the role of left-digit bias in the purchase of an apartment. Left-digit bias is the failure to fully process digits after the first, perceiving prices just below a round number (such as 4). Apartments with asking prices just below round millions are sold at a 3-5% higher final price after an auction. This effect appears not to be driven by differences in observables or in real estate agents’ behavior. Auctions for apartments listed just below round numbers are more competitive and attract more bidders and bids.
... However, the authors do not find that the degree of overpricing (or the percentage deviation from a Btypical^listing price for a similar house) is related to the selling price, suggesting the markets are probably efficient in residential property selling prices. Allen and Dare (2004) looked at listing price from a marketing viewpoint by examining the effect of Bcharm^pricing on net selling price. Charm pricing is defined as setting the list price slightly below some round number, for example, $99,900 instead of $100,000. ...
Sellers of unsold residential real estate usually have difficulty deciding whether to change the listing price and, if so, by how much. The purpose of this study is to determine what factors lead to listing price changes and the effect of listing price changes on the net selling price received by sellers. This study uses a sample of 13,461 single-family home sales in which 4308 had a selling price reduction during the listing period. The average original listing price for properties with one or more listing price changes is 18 % larger compared to properties where the listing price is unchanged; this difference narrows to 9.7 % when comparing final listing prices. The results indicate that the probability of a listing price reduction and the percent reduction are positively associated with house size, vacant property status, and a weak economy. A sample selection bias appears to exist for list price reduction properties, and while overpricing of properties often leads to a listing price reduction, the effect of a listing price change on the net selling price is estimated to be two to three times the given reduction in the listing price.
... The first, by Allen and Dare (2004), uses MLS data from 2000 and 2001 in Broward County, Florida. They construct a housing hedonic with logged final transaction price as the dependent variable. ...
... For example, homes listed with a price range rather than a single price tend to have longer TOM (Allen et al. 2005), yet 'off-dollar' pricing significantly shortens marketing time (Salter et al. 2007). Allen & Dare (2004) tested the effect of 'charm' pricing, where the price is set just below some round number. Their findings indicate this pricing strategy has a positive price effect. ...
This paper offers the first empirical investigation of the impact of marketing time on house sale price in Auckland, New Zealand. Using residential sales data and life table analysis, the impact of market cycle on the hazard of sale was tested. It was found that properties in a booming market sold more quickly than properties sold in a declining market. In addition, the relationship between time-on-market and price is tested using a two stage least square estimation. The results show that prolonged time-on-market reduces sale price. However, this impact is not uniform with variations observed due to changes in market conditions.
Alors que plus de la moitié des ménages français sont propriétaires de leur logement, on sait encore peu de choses sur la manière dont se construisent les choix des différents acteurs concernés. Quel est le rôle de l'agent immobilier dans le rapprochement des vendeurs et des acheteurs ? Quel est son degré d'implication dans l'attribution d'un prix à un logement ? Comment le marché immobilier participe-t-il au façonnement des villes et aux processus de peuplement ? L'auteur aborde ces questions sous un angle original et novateur. Car bien que jouant un rôle central, la profession d'agent immobilier n'avait encore jamais fait l'objet d'une étude sociologique jusqu'à ce jour. S'appuyant notamment sur le cas de l'agglomération lyonnaise entre 1990 et 2006, l'auteur nous propose un ouvrage au croisement de la sociologie urbaine et de la sociologie économique. Illustration de couverture : Fontana Franco, Urban Landscape, Los Angeles, 1991 © galerie Baudoin Lebon
La creciente necesidad de información de los agentes económicos no siempre se ve satisfecha por las fuentes de datos abiertas de la Administración Pública. La digitalización de la sociedad, en particular en el sector inmobiliario, ofrece un gran número de alternativas informativas, como los precios de los portales para la búsqueda de vivienda en internet. Este estudio analiza la relación entre los precios de oferta de los portales y los precios de mercado de alquiler, a partir de los datos del Ministerio de Transportes, Movilidad y Agenda Urbana de España, para 177 áreas geográficas en la Comunidad de Madrid. Los resultados demuestran empíricamente que las series de oferta y de alquiler guardan un alto grado de correlación; por tanto, se confirma que los datos de portales son un candidato válido para el análisis detallado y actualizado del mercado del alquiler.
Purpose
The purpose of the paper is twofold: first, to observe the relationship between sale to list ratio (SLR)/ for-sale inventory (FSI)/ sale count nowcast (SCN) and real/nominal housing value, and second, to produce a handbook of empirical evidence that can serve as a foundation for future research on this topic.
Design/methodology/approach
This paper broadly compiles empirical evidence, using three of the most common causality tests in the field of housing economics. The analysis methods include lagged Pearson correlation test, Granger causality test and cointegration test.
Findings
Causal relationships were observed between SLR/FSI/SCN and both nominal and real housing values. SLR and SCN showed positive long-term correlations with housing value, whereas FSI had a negative correlation. Adjusting the housing value with the Consumer Price Index (CPI) to derive real housing values could potentially alter the direction of the causal relationships. It is crucial to distinguish the long-term relationship from temporal dynamics, as FSI displayed a positive immediate impulse–response relationship with nominal housing price despite the negative long-term correlation.
Originality/value
SLR/FSI/SCN are housing market parameters that have only recently begun to be documented and have seen little use in research. So far, housing market research has revolved around traditional macroeconomic indicators such as unemployment rate. To the best of the authors’ knowledge, this study is one of the first studies that introduce these three parameters into housing market research.
Most prior studies of just-below pricing have primarily focused on low-stakes inconsequential consumer purchases, such as everyday household items. Using data from the Multiple Listing Service for the city of Savannah, Georgia, from 2006 through 2021, this study extends the more limited research on just-below pricing for more consequential purchases, specifically housing. Beyond an examination into the general effectiveness of just-below pricing in real estate, this study also explores the heterogeneous effects of its usage on sale price during different market conditions and in different market segments. The study shows that just-below pricing is common in the real estate market, and it does have an impact on final sale price, working most effectively within cold real estate markets. Furthermore, it is found that just-below pricing works best (though it is utilized least often) within low-end price segments, while just-below pricing can work against the seller in high-end home price segments (though it is used most often in these segments).
Does the power of reference points mean that minute differences in a purchase price then reverberate in future sales prices? In this research, I show that if previous sales prices are round numbers, defined as multiples of £1,000 (e.g. £231,000), subsequent sales prices entail a considerable premium relative to similar properties that were previously priced at charm numbers that are marginally below those round numbers (e.g. £230,999 or £230,950). Using a sample of repeat sales from the Greater London region from 1995 to 2017, I estimate the premium to be approximately 4 percent after controlling for property characteristics and a large set of fixed effects. Increasing public accessibility of information attenuates the effect. Tax considerations, financial constraints, and pricing errors cannot explain the result. I propose a framework of reference dependence and left-digit bias to explain the result, highlighting the presence of behavioural biases in household decisions, even when very high stakes are involved.
Nous nous sommes intéressés dans cette thèse à étudier le viager immobilier sous plusieurs de ses aspects, notamment financiers. Cette thèse se divise en cinq chapitres, les quatre premiers étudiant le viager, et le dernier un aspect actuariel relatif à la longévité. Le premier chapitre se consacre à l’étude du comportement des acteurs du viager immobilier au travers d’interviews qualitatives. Le second étudie le processus de décision des vendeurs au travers d’un questionnaire. Le troisième consiste en une étude statistique de la préférence pour le bouquet ou la rente et des déterminants de la négociation, de l’extraction de richesse et de l’annuitisation. Le quatrième chapitre consiste en une étude de la dynamique spatiale du viager en France. Enfin, dans un dernier chapitre, les aspects actuariels de longévité sont abordés dont un modèle mathématique particulier pour de multiples populations.
This paper is about the anchoring concept and its implementation
in creating the psychological prices which could determine the consumer
decision making process. As a concept, the anchoring is a process that
describes the use of irrelevant information as a reference for evaluating
or estimating some unknown value or information or the tendency to rely
too heavily on the first piece of information offered (the "anchor") when
making decisions.1Anchoring or guiding the consumers through the
decision making process can be achieve through different marketing
practices. One of them is psychological pricing method and its effects
that it has on the consumer’s decision making process.
This work empirically investigates the effect of the amount of time provided the broker to market property (listing contract length) on the likelihood of a successful marketing attempt. Do shorter listing contracts increase broker motivation or can contracts be so short that marketing efforts are unlikely to result in a successful transaction? The empirical results demonstrate that when the broker is provided a longer listing contract, the likelihood of a successful transaction increases but at a decreasing rate. This result suggests that home sellers face a tradeoff when choosing contract length. Longer contracts provide more time to arrange a successful sale, but reduction in broker motivation reduces the probability of sale as contracts lengthen.
This work investigates the effect of uncertainty over a property's flood zone status and the probability of a transaction for residential property during a given marketing period. While the impact on property price from flood zone delineation is well documented, the effect of any uncertainty over the location of property with respect to the 100-year flood pool on the probability of a transaction has yet to be determined. Findings suggest that uncertainty of flood zone status leads to a statistically lower probability of transaction, ceteris paribus. These results have implications for property sellers, real estate professionals, and government regulators.
Fluctuations in real estate prices have substantial impacts on economic activities. In Japan, a sharp rise in real estate prices during the latter half of the 1980s and its decline in the early 1990s led to a decade-long stagnation of the Japanese economy. More recently, a rapid rise in housing prices and its reversal in the United States triggered a global financial crisis. In such circumstances, the development of appropriate indexes that allow one to capture changes in real estate prices with precision is extremely important, not only for policy makers but also for market participants who are looking for the time when housing prices hit bottom. Recent research has focussed on methods of compiling appropriate residential property price indexes. The location, maintenance and the facilities of each house are different from each other in varying degrees, so there are no two houses that are identical in terms of quality. Even if the location and basic structure are the same at two periods of time, the building ages over time and the houses are not identical across time. In other words, it is very difficult to apply the usual matching methodology (where the prices of exactly the same item are compared over time) to housing.
A lot of physicists and economists have contributed to studies showing analogies between physical complex systems and economic and financial markets. In this paper we have compared the complex system of earthquakes with Internet, social media and finance. In particular, we have observed as Omori’s law conforms in both to the evolution of the tweets and to the securities exchanged on the financial market after dissemination of information. The analysis of empirical data concerns companies operating in the market. We have tested the relationships between variables through Person correlation coefficient and the relationship between phenomena with power trend-lines. We show that these complex financial systems follow a specific law that is related to the Omori’s law.
The nature of the relationship between a property's selling price and its marketing time in the housing market remains an open question to date, despite almost 40 years of inquiry and hundreds of regressions conducted on various data sources. This study attempts to settle the long-standing open question by examining the issue from a new perspective. We demonstrate that the true price–TOM relationship should be nonlinear and characterized by an inverted U-shaped curve wherein the selling price increases with TOM up to a certain threshold, reflective of a positive exposure effect and decreases thereafter to reflect a negative stigma effect. This relationship is borne out in an empirical analysis using a large sample of home sales from the Hampton Roads, Virginia metropolitan area during an extended period of time. We then formulate hypotheses about the benefit of search by home sellers, which are subsequently confirmed by the empirical findings.
Using a sample of 26,892 rate quotes on home purchase loan applications, the current paper investigates interstate variation in residential mortgage interest rates. More specifically, we find posted rate quotes by lenders are directly related to measures of foreclosure process risk including the length of time required to complete foreclosure proceedings within a jurisdiction and the presence (and length) of statutory redemption
periods. Mortgage rates are also found to be contingent upon differential underwriting fees and conditions, housing appreciation and volatility measures, and the competitive nature of the economic marketplace in which each lender operates. In contrast to the previous literature, we find the judicial foreclosure process requirements exert little to no impact on observable mortgage interest rate quotes after controlling for these
additional dimensions of risk.
Price promotions play a prominent role in German grocery retailing. Their purpose is to increase store traffic and strengthen customer loyalty. It is hypothesized that other marketing tools, like psychological pricing can add to the positive impact of price promotions on sales. Thus, we investigate the joint impact of price promotions and different pricing points on sales. Our empirical analysis shows that just-below prices tend neither to raise sales of regularly priced products nor of price promoted products. The only exception is significant price reductions combined with 99 ending prices (especially of private labels). While our results show no alternatives to regular 9 ending prices, price promotions should rather end in a 99 or be round. Moreover, repdigits (eye-catching price figures) can significantly increase sales of price promoted manufacturers' labels when other cues of price promotions exist. However, German retailers, particularly discount stores, do rarely make use of such combined marketing tools. The results indicate that consumers pay less attention to the size of price reductions than to other cues of price promotions or displays, whereby psychological pricing can intensify the impact of other marketing tools on sales.
Are focal points important for determining the outcome of high-stakes negotiations? We investigate this question by examining the role that round numbers play as focal points in negotiations in the housing market. Using a large dataset on home transactions in the U.S., we document sharp spikes in the distribution of final negotiated house prices at round numbers, especially those divisible by $50,000. The patterns cannot be easily explained by simple stories of convenience rounding or by list prices. We conclude that round numbers can serve as focal points, even in settings with very high stakes.
This thesis presents a sociological approach of French Real Estate Agents and of their influence on housing market in Lyon between 1990 and 2006. Crossing urban sociology and economic sociology, this work is divided into three parts. 1/ To bring some new data about real estate agents who have rarely been studied in France and to understand the background of real estate sales. 2/ To analyse the patterns that draw the relationships between sellers, buyers, and real estate agents. 3/ To see the results of theses patterns on a local housing market, and specifically on the sales of old apartments In the central areas of Lyon.
The bigger the capital value (CV) of your house the bigger the rates bill. In New Zealand CVs provide a basis for levying rates at the local government level. At the time of a general revaluation, some property owners object to their CV. Property sellers sometimes use the current CV in marketing efforts for their properties and CV becomes a reference point in buyers’ decision making. The aim of this study is to understand if successful CV objections affect prices of objectors who subsequently sell their property. To test price impacts, properties whose owners objected to the 2008 revaluation were identified and analysed within the residential sales transactions for Auckland City between Q4 2008 and Q4 2009. Contrary to anecdotal evidence, the empirical results indicate that increasing CV does not have a statistically significant effect on sales prices.
This paper investigates the impact of privately-administered architectural review boards on property price and marketing time and, thus, their financial efficacy. Additionally, the paper demonstrates the usefulness of two-stage least squares regression as a modeling technique to better capture the simultaneous determination of property price and property marketing time. Robust results across two-stage least squares estimations and more traditional employed hedonic and hazard model estimations show that properties subject to architectural review board oversight experience a significantly higher selling price and a simultaneous reduction in marketing span, ceteris paribus.
The property price-marketing duration relationship is an important component of many real estate studies. However, contrary to theories, and widely-held notions of many researchers, the relationship is not as straightforward as generally assumed. In this paper, we summarize the literature and model price and marketing time to highlight the nature of the property price-marketing time tradeoff. As defined in this work, "simultaneous modeling" includes studies in which marketing time appears as a control in pricing models, as well as studies in which property price is used as a control in time-on-market models.
Purpose
– The purpose of this paper is to evaluate the effectiveness of this legislative reform in the state of South Australia (SA) through an examination of the relationship between listed or advertised price and transaction prices before and after the changes in regulation. Between 2000 and 2008, legislative changes took place throughout Australia to make real-estate transactions more transparent and to deal with misleading conduct by real-estate agents. The practice of “charm” or “bait” pricing was targeted. This denotes the under-quoting of estimated selling prices in real-estate sale advertisements which can be considered deceptive or even fraudulent.
Design/methodology/approach
– The study area is Adelaide, the state capital of SA and includes analysis of first and last advertised prices and eventual selling price for > 120,000 residential sales transactions over a nine-year period between 2003 and 2011. The analysis to test these hypotheses included, first, a descriptive evaluation of the percentage price difference over time and a spatial breakdown of mean percentage price difference before and after legislation. Second, for each hypothesis, the change was tested by measuring the variance of the percentage change, with significance established through the Levene and Brown–Forsythe tests, rather than by the mean percentage change.
Findings
– The results, both descriptive and statistical, support the effectiveness of the reform in legislation.
Research limitations/implications
– The study has application in terms of agents as social gatekeepers and confirms the role of regulation to ensure market values are achieved and consumers not disadvantaged. With friction in the market, imperfect information and the possible behavioural responses of land agents, there may be incomplete market correction of underpricing strategies. This paper confirms the effectiveness of one such market intervention.
Social implications
– Some half a million dwellings are purchased in Australia every year. Annually, in the state of SA, some 53,000 dwellings are financed to be purchased or built. These levels of purchase reflect national home ownership rates of about 69 per cent, with some 33 per cent of Australians owning their houses outright and a growing number, some 36 per cent, owners with a mortgage. Australian households also move house relatively frequently. In 2008, 43 per cent of Australians reported moving in the previous 5 years, 15 per cent had moved 3 or more times. The most common reasons for moving were twofold, either to buy a house or to buy a bigger house. These levels of purchase, home ownership and mobility underpin the importance and viability of some 10,000 real-estate services businesses in Australia; a sector which, up to 2,000, was largely self-regulated.
Originality/value
– This paper is one of the first in Australia to effectively quantify the success of legislative reform on residential agency behaviour.
Using a sample of 26,892 rate quotes on home purchase loan applications, the current paper investigates interstate variation in residential mortgage interest rates. More specifically, we find posted rate quotes by lenders are directly related to measures of foreclosure process risk including the length of time required to complete foreclosure proceedings within a jurisdiction and the presence (and length) of statutory redemption periods. Mortgage rates are also found to be contingent upon differential underwriting fees and conditions, housing appreciation and volatility measures, and the competitive nature of the economic marketplace in which each lender operates. In contrast to the previous literature, we find judicial foreclosure process requirements exert little to no impact on observable mortgage interest rate quotes after controlling for these additional dimensions of risk.
Housing listing prices serve as sellers' initial offers in the negotiation process and both the magnitude and the design of listing prices may convey information about sellers' reservation prices. Sellers frequently offer their properties for sale at listing prices that are just below some round price (e.g., 200,000). Some researchers have dubbed this strategy "charm pricing." Previous studies of the impact of charm listing prices on transaction prices provide mixed results, suggesting that the ramifications of the charm pricing strategy are not yet fully understood. This paper presents an empirical investigation of the potential role of charm pricing as a signal of listing price precision or "firmness." The findings indicate that transactions with charm listing prices exhibit significantly smaller discounts than transactions that use non-charm listing prices.
Offering a unifying theoretical perspective not readily available in any other text, this innovative guide to econometrics uses simple geometrical arguments to develop students' intuitive understanding of basic and advanced topics, emphasizing throughout the practical applications of modern theory and nonlinear techniques of estimation. One theme of the text is the use of artificial regressions for estimation, reference, and specification testing of nonlinear models, including diagnostic tests for parameter constancy, serial correlation, heteroscedasticity, and other types of mis-specification. Explaining how estimates can be obtained and tests can be carried out, the authors go beyond a mere algebraic description to one that can be easily translated into the commands of a standard econometric software package. Covering an unprecedented range of problems with a consistent emphasis on those that arise in applied work, this accessible and coherent guide to the most vital topics in econometrics today is indispensable for advanced students of econometrics and students of statistics interested in regression and related topics. It will also suit practising econometricians who want to update their skills. Flexibly designed to accommodate a variety of course levels, it offers both complete coverage of the basic material and separate chapters on areas of specialized interest.
Research on many consumer goods has indicated that pricing strategies may influence perceptions of quality. Whether such perceptions exist for large assets like real estate, which may therefore allow strategies to influence selling prices is the subject of this study. Large high-rise centrally-located condominium data is used to test whether asking prices are an indicator of value to buyers.
This article examines the usefulness of listing prices as leading indicators of house values and as predictors of the direction of housing markets. With Multiple Listing Service data from a large metropolitan area, we create two price indexes, using first listing price and then selling price as the dependent variable in the hedonic regressions. The market is then geographically and categorically segmented, and Granger causality tests are performed to analyze the leading aspect of list prices in the list price-sales price relationship. We find that different segments of the market perform quite differently over the time period of our study, suggesting that for data-based appraisal purposes care is needed in determining the manner and level of aggregation. We also find, however, that market list prices continue to convey important information about subsequent selling prices in most market segments.
Markets respond to prices in complex ways. Multiple factors such as price points, odd pricing, and just-noticeable differences often cause steps and spikes in response. The result is market response functions that are frequently nonmonotonic. However, existing regression-based approaches employ functions that are inherently monotonic, which thereby limits representation of important irregularities. In this article, the authors use a stochastic spline regression approach in the framework of a hierarchical Bayes model that permits the estimation of irregular pricing effects and apply the approach to data sets from several product categories. A simulation study indicates that the stochastic spline approach is flexible enough to accommodate irregular response functions. The empirical results show that there are irregularities in own-price response for most of the brands examined and that there are important profit implications of these irregular response functions in pricing decisions. The authors find that the irregularities in the response functions include sales increases associated with odd prices in the range of 12% to 76%, flatness at the extremes of the range of observed prices, and kinks in the response function that are consistent with segmentation effects.
Develops and estimates a model of the household's search for housing. Presents the theoretical framework and the development of the testable hypotheses, and tests these implications using a longitudinal panel of households. Results indicate that households do search efficiently for housing. The results support the implications of Courant's model, ie. minorities facing discrimination have a lower level of optimal search.-from Author
Through the cooperation of a direct-mail women's clothing retailer, we were able to conduct a well-controlled experiment testing the sales effect of using retail prices that end in the digits 99 rather than 00 (e.g., 30.00). The results indicated that the use of 99 endings led to increased consumer purchasing. This finding demonstrates the importance of the manager's decision concerning a price 's rightmost digits. © 1996 New York University. All rights of reproduction in any form reserved.
Formula-based pricing strategies are more prevalent in thefood-service literature than in restaurant operations, a studyreveals.What are the magic numbers that stimulate sales—and why are restaurateurs more likely to employ"psychological"pricing techniques than formulas?
Markets respond to prices in complex ways, Multiple factors such as price points, odd pricing, and just-noticeable differences often cause steps and spikes in response, The result is market response functions that are frequently nonmonotonic. However, existing regression-based approaches employ functions that are inherently monotonic, which thereby limits representation of important irregularities, In this article, the authors use a stochastic spline regression approach in the framework of a hierarchical Bayes model that permits the estimation of irregular pricing effects and apply the approach to data sets from several product categories. A simulation study indicates that the stochastic spline approach is flexible enough to accommodate irregular response functions, The empirical results show that there are irregularities in own-price response for most of the brands examined and that there are important profit implications of these irregular response functions in pricing decisions, The authors find that the irregularities in the response functions include sales increases associated with odd prices in the range of 12% to 76%, flatness at the extremes of the range of observed prices, and kinks in the response function that are consistent with segmentation effects.
Although findings have been somewhat inconsistent, there is evidence from both experimental studies and field research that prices set just below the nearest round figure produce higher than expected demand at that level. Among the different explanations that have been proposed for these effects are that consumers round prices down, encode prices from left to right, remember only the “most important” digits of a price, and/or attach certain “images” to nine-ending prices. Utilizing a unique experimental setting, the author examines dollar vs cents digit recall as well as the choice frequencies associated with zero- vs nine-ending prices to determine the efficacy of the proposed explanations. Within this setting, the author concludes that left-to-right digit encoding may be a necessary condition for higher than expected demand.
Presents the findings of a study designed to investigate the effect of odd pricing on respondents’ purchase probabilities for six products ranging in price from 100. The products tested were a block of cheese, a frozen chicken, a box of chocolates, a hair dryer, an electric kettle and a food blender, and the data were collected in a mall intercept of 300 household shoppers. For each product a demand curve was estimated and the differences between expected and actual purchase probabilities at each odd price level examined. For all six products, demand was higher than expected at one or both of the odd price points tested. This effect was particularly marked for the lower-priced food items (cheese, chicken and chocolates) and for prices ending in the digit 9. Provides support for the assumption that odd pricing generates greater than expected demand and for the common practice of setting retail prices which end in 99 cents or $99.
The paper presents a multivariate analysis of single-family-home sales data to investigate differences in performance among real estate firms. The decision considered is which firm should be chosen by a homeowner selling through an agent.
Factor analysis of property features was used to obtain orthogonal dimensions. This permitted analysis of the influence of other variables with only limited multicollinearity. Broker effects on listing and selling price were studied through regression analysis with dummy variables and slope shifters on the factors and through analysis of variance on the regression residuals after removal of house characteristics. A number of performance differences of consequence for the choice of selling agent were observed. Some of the reasons for these differences are discussed.
The Heckman two-step estimator (Heckit) for the selectivity model is widely applied in Economics and other social sciences. In this model a nonzero outcome variable is observed only if a latent variable is positive. The asymptotic covariance matrix for two-step estimation procedure must account for the estimation error introduced in the first stage. We examine the finite sample size of tests based on alternative covariance matrix estimators. We do so by using Monte Carlo experiments to evaluate bootstrap generated critical values and critical values based on asymptotic theory.
This paper examines the impact of brokers on buyers' and sellers' search behavior and on the transaction prices in real estate markets. It is shown that the seller and the buyer search less intensively if the house is listed with a broker. The seller gets a higher price when he employs a broker, but the increase in price is smaller than the commission fee. More specifically, the portion of the commission covered by the increase in price is directly related to the bargaining powers of the buyer and the seller. In the special case where the price is determined according to the Nash bargaining solution, the increase in price is shown to be half of the commission fee. It is also shown that an increase in the commission rate increases the equilibrium price but decreases the equilibrium search intensities.
When a house is placed on the market, the seller must choose the initial offer price. Setting the price too high or too low affects the marketability of the property. While there is near universal agreement that the seller faces a trade-off between selling at a higher price and selling in less time, there is less agreement about how to measure this trade-off. This paper offers a framework for analysis and shows that an increase in the list price increases expected time-on-the-market (TOM). Because house buyers must solve a type of signal extraction problem, the effect of a higher list price is magnified for houses in a market segment having a low predicted variance of the list price. This paper also shows that the list price of houses which are withdrawn before sale has a higher mean and variance, and that the possibility of withdrawal censors information about the time-on-the-market.
A model of the search process for a house is formulated, where both buyers and sellers are permitted adaptively to alter reservation prices. Houses on the market in a given period are sold or withdrawn or search for a buyer is continued. The empirical predictions are examined for single-family residential homes.
The studies described in this paper investigated the use of a decisional heuristic—anchoring-and-adjustment—in an information-rich, real world setting. In order to assess the generalizability of laboratory research on this decision heuristic, students and real estate agents toured and made pricing decisions about real estate properties. It was hypothesized that manipulated listing prices would anchor values assigned to the properties. Results were consistent with the use of an anchoring-and-adjustment value estimation strategy in information-rich, real world settings. Implications for the understanding of judgmental expertise are discussed.
Odd pricing is the ubiquitous practice of expressing a price so that it falls just below a round number. In this study, subjects were presented with a set of prices and were asked to recall those prices 2 days later. It was found that odd-ending prices are less likely than even-ending prices to be recalled accurately and that expressing a price as an odd-ending price increases the likelihood that it will be underestimated when it is recalled.
This paper investigates the asking rent behavior of a landlord with a vacancy who faces a known, downward sloping rental probability function. The shape of this function is shown to be strongly dependent on the form of the underlying acceptance rent distribution and on the rate at which prospective tenants visit the unit. A particular family of asking rent strategies is examined. It is shown that all of these strategies exhibit a declining sequence of asking rents, and that the landlord in choosing among them must balance his desire for rental income against his aversion to waiting.
This paper presents a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic. This estimator does not depend on a formal model of the structure of the heteroskedasticity. By comparing the elements of the new estimator to those of the usual covariance estimator, one obtains a direct test for heteroskedasticity, since in the absence of heteroskedasticity, the two estimators will be approximately equal, but will generally diverge otherwise. The test has an appealing least squares interpretation.
Several consumer behavior theories have been offered to explain the preponderance of prices that end in the digit 9. This study attempts to incorporate these proposed behaviors into the implicit utility function of consumer choice models, resulting in both a more accurate tool for managerial decision making and additional insights into how consumers actually behave toward price endings. An attempt is made to compensate for both level effects (those effects in which consumers may underestimate the value of a price) and image effects (those effects in which consumers may infer meaning from the right-hand digits). The models are estimated using scanner panel data for two frequently purchased products, tuna and yogurt. The results support the importance of accounting for the digits in consumer choice models, providing evidence for both image effects and level effects. Copyright 1997 by the University of Chicago.
This paper analyzes a search-and-bargaining model in which the asking price influences the rate at which potential customers arrive to inspect the seller's house, and the buyer's valuation of the asset is not learned until after the seller makes his initial offer (the asking price). The optimal asking and reservation prices are characterized, and the existence of a subgame-perfect equilibrium asking-price-reservation-price strategy is established. Comparative-statics analysis illustrates how seller and buyer discount rates and the buyer's outside opportunity affect the optimal reservation and asking prices. Copyright American Real Estate and Urban Economics Association.
The seller of a real estate property and his broker have two primary goals: to sell the properly for as high a price as possible and as quickly as possible. While these are separate objectives, they are closely related through the listing price of the seller. The listing price affects how long it takes to find a buyer (i.e., Time On the Market = TOM), and TOM influences the price that results from the bargaining between the seller and the buyer. This leaves the seller and his agent with an important question: What is the optimal price to be asked for the property? The objective of this research is to provide a theoretical and empirical analysis of the impact of listing price on TOM and the transaction price. Copyright American Real Estate and Urban Economics Association.
The marketing of unique durable goods such as housing presents a good example for the application of search theory. An optimal stopping rule strategy is employed to model sellers' behavior. The primary hypothesis is that the greater the atypicality of a house, the greater the expected variance of offers. Because a maximizing seller will wish to entertain more offers the greater is the variance, the marketing time of atypical houses will be relatively longer than that of standard houses. Using a sample of resale houses, the empirical study uses a failure time model to confirm the hypothesis. Extensions are mentioned, including discussions of the role of the list price and the limitations of the standard hedonic regression approach when applied to housing. Copyright American Real Estate and Urban Economics Association.
The purpose of this paper is to develop a model of the real estate brokerage and housing markets with imperfect information. The paper considers general equilibrium in these markets with and without a multiple listing service. Input prices are found to affect the equilibrium housing price, brokerage commission, and split factor. The introduction of a multiple listing service is found to have several important effects. The MLS causes housing value to increase, but its effect on the commission rate is indeterminate. Contrary to the results of another paper, MLS brokers, on average, will likely undertake more search for both buyers and listings than will a non-MLS broker. The primary reasons are related to the greater efficiency of search in the MLS context. Copyright American Real Estate and Urban Economics Association.
To determine whether list price contains useful information for anticipating trends in eventual transactions prices, we develop a model of buyer behavior from a search-theoretic perspective. Using data from the Baton Rouge, Louisiana, housing market between 1985 and 1992, we estimate separate price indexes with list price and selling price as the respective dependent variables in the hedonic regressions. Consistent with our theory, we find that the list price may lead the market when functioning as a signal of seller intent, but list price will probably lag a market driven by buyer willingness to purchase. Granger causality tests conducted on quarterly data for the eight-year study support listing price as a leading indicator of selling price. However, an examination of the indexes around the period of market reversal suggest otherwise. Indeed, listing prices appear to contain the least useful information at the times when information would be most valuable: at the peaks and troughs of the market cycle.
This paper examines the complex relationship between selling price, listing price, housing features, housing market conditions, and marketing time in a large sample of single-family homes. A key finding is that, for houses of equal quality, marketing time varies with the level of contract mortgage rates. Overpricing by sellers is not a successful strategy, however, even under market conditions in which houses in general sell relatively quickly. Finally, marketing time is significantly shorter for newer homes, particularly those in medium or high price ranges, but a home's size has no significant effect on the number of days it remains on the market.
Houses are routinely sold at prices below, but rarely sold at prices above, their list price. List prices appear to be price ceilings that preclude the possibility of sales at higher prices. This paper presents a theory of sellers' behavior that explains why there are list prices in housing markets and why list prices are distinct from sellers' reservation prices. The theory forms the basis of an econometric model that has been estimated using data from the Baltimore, Maryland, area. The estimated model predicts sale and reservation prices conditional on list prices. The predictions of sale prices are considerably more accurate than those obtained from a standard hedonic price regression. The estimated model also explains why sellers may not be willing to reduce their list prices even after their houses have remained unsold for long periods of time. Copyright 1992 by John Wiley & Sons, Ltd.
This paper discusses the bias that results from using nonrandomly selected samples to estimate behavioral relationships as an ordinary specification error or "omitted variables" bias. A simple consistent two stage estimator is considered that enables analysts to utilize simple regression methods to estimate behavioral functions by least squares methods. The asymptotic distribution of the estimator is derived.
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