The Effects of Charm Listing Prices on House Transaction Prices

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. , $99,900 instead of $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.     

Auction hosting site pricing and market equilibrium with endogenous bidder and seller participation

This paper characterizes the payoffs and pricing policies of auction hosting sites when both the bidders’ and the sellers’ participation is endogenous. Sellers have heterogeneous opportunity costs and make a listing decision depending on the listing fee and the expected revenue from the sale. On the other side of the market, factors such as facility in navigating an interface layout and prior bidding experience result in bidder heterogeneity with respect to participation costs. Bidders participate if their ex ante expected payoff from searching the site exceeds their participation costs. The auction site earns revenue by setting positive listing fees, trading off the increased revenue per seller resulting from a higher fee with the revenue reduction from the loss of sellers. Though this appears to be a classic monopoly problem, there are important differences. The reduction in the number of sellers participating in a site has feedback effects, as it affects the number of bidders who choose to visit that site, which in turn again affects the attractiveness of the site to sellers, and thus further reduces seller participation. In this environment the monopolist’s ability to extract rents is severely limited, even if one considers rent extraction from the seller side of the market only. It is demonstrated that the inverse demand curve is flatter than the demand curve obtained from the (inverse) distribution of seller costs. Moreover, the inverse demand curve has at least one and possibly multiple flat segments, leading to discontinuities in the profit function. Thus, small changes in the environment can lead to large changes in the optimal fee and market participation.     

Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes

Information about price changes during a home's marketing period is typically missing from data used to investigate the listing price, selling price, and selling time relationship. This paper incorporates price revision information into the study of this relationship. Using a maximum-likelihood probit model, we examine the determinants of list price changes and find evidence consistent with the theory of pricing behavior under demand uncertainty. Homes most likely to undergo list price changes are those with high initial markups and vacant homes, while homes with unusual features are the least likely to experience a price revision. We also explore the impact of missing price change information on estimating a representative model of house price and market time. Our results suggest that mispricing the home in the initial listing is costly to the seller in both time and money. Homes with large percentage changes in list price take longer to sell and ultimately sell at lower prices.     

Optimal Selling Mechanism,Auction Discounts and Time on Market

This article examines the optimal selling mechanism problem in real estate market using mean‐variance analysis and downside risk analysis. When sellers can choose between accepting the first offer above a reservation price or auctions (waiting an optimal and fixed time), sellers having higher risk aversion choose auctions and wait a fixed time while sellers having lower risk aversion choose an optimal reservation price and wait a random time. Positive auction discounts are compensated by reduced risks, and there exists a connection between liquidity risk and conditional auction discount. More (Fewer) sellers will choose to sell their houses through auctions in a hot (cold) market or when holding cost increases (decreases). When sellers choose auctions, sellers having higher risk aversion who have lower holding cost wait longer and obtain higher sale price. Loss‐averse sellers unanimously choose the mechanism of setting an optimal reservation price.     

A Spatiotemporal Solution for the Simultaneous Sale Price and Time‐on‐the‐Market Problem

There exists an important methodological challenge when dealing with sale price and time‐on‐the‐market variables because both variables are simultaneously determined and related to the motivation of the sellers and buyers. Exploiting the fact that transactions occur over space and time, we propose a two‐stage approach based on instrumental variables (IV) built from information collected from previous transactions. The unidirectional temporal property and the fact that other transactions are exogenous from the perspective of a single buyer or seller are exploited to evaluate the effect of the sale price on time‐on‐the‐market, and the effect of time‐on‐the‐market on the sale price. Based on 29,471 transactions occurring in the suburban neighborhood of Montréal (1992‐2000), the results suggest that, everything else being equal, houses staying longer on the market provide negative information to the market, which results in a lower final sale price, while the final sale price is negatively related to time‐on‐the‐market, indicating that houses of better quality (better amenities) stay less time on the market.     

The Disciplining Effect of Concern for Referrals: Evidence from Real Estate Agents

Real estate agents rely on clients for referrals to generate future business; this article examines whether concern for referrals disciplines agents. We compare results for sellers who move to another area (and are less likely to provide referrals) with results for sellers who remain in the area (and are more likely to provide referrals). We find that moving‐away sellers’ houses have a higher sale rate, sell faster and sell for less (even after controlling for moving‐away sellers’ greater impatience). We also provide evidence that the disciplining effect of concern for referrals is stronger for agents who place a greater value on reputation. Finally, among sellers who are better at evaluating and monitoring agents, we see less of the high sell rate, low sale‐price effect.     

The Housing Market and Real Estate Brokers

The major development in this paper concerns the failure, in earlier studies, to consider interaction between alternative methods of arranging sales in the housing market. A seller may market a house by direct negotiations with buyers, without the intermediation of real estate brokers, or by listing the house with a broker. A rational seller would choose the option which offers the higher expected return on the house. In a sequence of models we argue that the seller's option of a method of sale induces competitive pressure in the choice of the commission rate by the broker. We also consider the split rate in a multiple listing system, ease of entry of brokers and the cartel hypothesis as applied to brokers. We conclude that the competitive pressure of direct negotiations between sellers and buyers, relative free entry of brokers and the inappropri-ateness of the cartel hypothesis cast serious doubt about a general consensus of opinion that the brokerage system is characterized by price fixing, excessive commissions and excessive marketing costs.     

Optimal Price and Selling Effort from the Perspectives of the Broker and Seller

This paper uses numerical solutions of a dynamic optimization model to examine the principal-agent relationship between the seller and broker in residential real estate markets. Potential conflict of interest is quantified in two dimensions, the level of selling effort the broker puts forth, and the reservation price for the property. The dynamic optimization model reveals that the use of a finite duration listing contract will induce the broker to increase his or her effort level compared to an unlimited duration contract, and that the broker's optimal effort will increase over time, becoming greater as the listing contract expiration time draws nearer ("rational procrastination"). The numerical analysis indicates that with plausible parameter values, conflict of interest problems regarding broker effort level are minor or nonexistent near the end of the listing contract, but potentially important near the beginning of the contract. In contrast, the conflict of interest regarding reservation price is more severe near the end of the listing contract and is exacerbated by the use of finite duration contracts, the more so the shorter the contract.     

Housing Market Conditions, Listing Choice and MLS Market Share

In some housing markets, a seller may hire a broker to multiple list or exclusively list a property for sale or may bypass the brokerage industry and list the property privately as a "sale by owner." This article introduces a new model that illustrates the factors which will impact on the broker's and seller's preferred type of listing. An implication of the model is that if the choice is available, sellers and real estate brokers will employ a multiple listing service more often during slower market periods where the volume of sales is low and properties are more difficult to sell. An empirical analysis of Vancouver data yields results consistent with these arguments.     

An Experimental Analysis of the Impact of Intermediaries on the Outcome of Bargaining Games

We conduct an experimental analysis of the bargaining between a buyer and a seller of the exchange of a single good by means of an intermediary or broker. We examine how an intermediary affects the price, the likelihood of a successful negotiation, and the time it takes to complete a negotiation. We first examine the impact of the intermediary as a pure middleman, and then as an information source about the distribution of seller and buyer reservation prices. The results show that an intermediary, whether or not informed, increases the sale price, reduces the likelihood of an agreement, and increases the time to reach an agreement (though the number of bargaining rounds declines). The results suggest that the benefits of brokerage may be predominantly in the matching of buyers and sellers rather than in facilitating bargaining.     

Estimating Bargaining Effects in Hedonic Models: Evidence from the Housing Market

Bargaining is common in markets for heterogeneous goods and differences in bargaining power between buyer and seller affect the negotiated transaction price. Previous research has found systematic evidence in the housing markets that weak buyers pay higher prices and weak sellers receive lower prices for their homes. Earlier work has modeled the bargaining effect as a parallel shift in the hedonic function, implicitly assuming that attribute shadow prices were unaffected by the bargaining process. In this paper, we use a sample of home sales where the seller's bargaining power is weakened by the fact that the home is vacant at the time of sale to test whether the effect of bargaining is best captured by a shift in the hedonic constant or whether the attribute shadow prices vary as well. The question is significant for property valuation where estimation of the marginal value of an attribute is commonly used to adjust comparable sales data. We find strong confirmation that bargaining power influences the negotiated price. We also find evidence that bargaining power alters attribute prices, although we do not find a consistent pattern across markets.     

Seller curation in platforms

This article explores why market platforms do not expel low-quality sellers when screening costs are minimal. I model a platform market with consumer search. The presence of low-quality sellers reduces search intensity, softening competition between sellers and increasing the equilibrium market price. The platform admits some low-quality sellers if competition between sellers is intense. Recommending a high-quality seller and this form of search obfuscation are complementary strategies. The low-quality sellers enable the recommended seller to attract many consumers at a high price and the effect of the recommendation is strengthened as low-quality sellers become more adept at imitating high-quality sellers.     

Exclusionary discounts

We consider a two-period model with two sellers and one buyer. Although we assume it is efficient for the buyer to purchase from both sellers in each period, we show that when the buyer's valuations are inter-temporally linked and at least one seller is financially constrained, exclusion can sometimes arise in equilibrium (i.e., the buyer purchases all of its requirements from the same seller in each period). The exclusionary equilibria are supported by contract offers in which the excluding seller's incremental price to supply the contestable part of demand is below its marginal cost and sometimes negative. Our findings contribute to the literatures on market-share contracts, bundling, all-units discounts, and loyalty discounts.     

Warranty,Seller Reputation,and Buyer Experience: Evidence From EBAY Used Car Auctions

Using data from the eBay car auction market, we test several predictions regarding warranties, seller reputation and buyer experience in the determination of the final price. We find that the presence of a warranty generates a price premium, but that its magnitude decreases when the seller has a more established reputation. Compared to private sellers, professional dealers, who are ‘repeated‐game players’ in the market, benefit less from a warranty and its substitutability for seller reputation is relatively small. In addition, a buyer with greater experience tends to pay less for a warranty or for a professional dealership.     

The Strategic Role of Listing Price in Marketing Real Estate: Theory and Evidence

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.     

PRICE DISPERSION AND COMPETITION WITH DIFFERENTIATED SELLERS*

I measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment. Significant price dispersion exists even after controlling for differences in station characteristics, and price differences between sellers change frequently. The extent of price dispersion is related to the density of local competition, but this relationship varies significantly depending on the type of seller and the composition of its competitors. These findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature.     

Using experiments to compare the predictive power of models of multilateral negotiations

We conduct unstructured negotiations in a laboratory experiment designed to empirically assess the predictive power of models of the multilateral negotiations observed in diverse strategic settings. For concreteness we consider two sellers negotiating with a buyer who wants to make only one trade, and we categorize the models by whether introducing a second seller to bilateral negotiations always, never, or sometimes increases the buyer's payoff. Our experiment features two scenarios within which the three categories of models have observationally distinct predictions: a differentiated scenario with one high-surplus seller and one low-surplus seller, and a homogeneous scenario with identical high-surplus sellers. In both scenarios the buyer tends to trade with a high-surplus seller at terms indistinguishable from those in bilateral negotiations with a high-surplus seller, meaning that introducing a competing seller does not substantially affect the observed terms of trade. Our findings match the predictions from models in the never-matters category, supporting their use when modeling multilateral negotiations.     

Market Mechanism Choice and Real Estate Disposition: Search Versus Auction

We propose a model of mechanism choice in the disposition of real estate assets where we consider two alternatives: a search market and an auction. Within the search framework, we derive an equilibrium whereby buyers incur search costs and sellers incur holding costs for the period during which the property is not sold. In the auction alternative, the seller joins an existing pool of sellers in undertaking a multiple–object auction and pays a commission upon sale. Buyers and sellers freely choose their mechanisms, which in equilibrium are optimal given each group's conjectures about the mechanism choice of their counterpart. In equilibrium, an agent cannot benefit from deviating from his choice and each agent's beliefs are consistent with the equilibrium outcome. It is shown that (a) buyers with high search costs will choose auctions because the auction payoff imposes an upper bound on buyers' gains from search, and (b) prices at auctions will be higher. Using vacant lot sales data and a method–of–moment estimator which accounts for the presence of an endogenous discrete mechanism choice variable, we estimated a hedonic regression to detect the price effect. It was determined that, on average, lots sold for $1.44 per square foot more in auctions than in the search market, as predicted by our model.     

FINANCIAL VALUE OF REPUTATION: EVIDENCE FROM THE eBAY AUCTIONS OF GMAIL INVITATIONS*

In this article, I utilize a unique collection of auctions on eBay to study the influence of seller reputation on auction outcomes. In a market of homogeneous goods with non‐enforceable contracts, I find that sellers who improve their reputation by one quintile from the lowest, experience a 6.2% higher probability of sale and a 6.1% hike in valuation after adjusting for truncation bias from failed auctions and explicitly controlling for unobservable seller heterogeneity. This study also shows that in addition to a dimension of reputation universal across different product markets, the product‐specific dimension of reputation significantly affects the auction outcomes.     

Quality infomediation in search markets

We examine the effects of informational intermediation by a third party ‘infomediary’ in a search model with heterogeneous seller qualities and asymmetric information. The infomediary earns revenue by selling a list of accredited sellers (a ‘guidebook’) to buyers and selling accreditations to sellers. We show that such information always improves welfare but can hurt informed buyers (as well as the uninformed) if it is not sufficiently informative about seller qualities. The model also provides a number of insights concerning the private and social incentives to create information, and the determinants and nature of demand for infomediation services by buyers and sellers.