Skip to main content
SpringerLink
Log in

The Effect of Time-on-Market and Location on Search Costs and Anchoring: The Case of Single-Family Properties

  • Published:
The Journal of Real Estate Finance and Economics Aims and scope Submit manuscript

Abstract

Regarding single-family residential properties purchased for investment (non-owner occupied) we examine whether out-of-state buyers pay more than in-state buyers. We focus on the effects of search costs and anchoring. We use data on 2,828 Las Vegas non-owner occupied (investor) residences, 40% of which are purchased by non-local investors. We find that the location of the property affects the empirical results. Specifically, search cost and anchoring effects that appear significant when the location of the property is ignored disappear when location is introduced as an independent variable.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. Miller, Sklarz and Ordway report that prices were $50–75 per square foot of lot space in Honolulu compared to $1,500–4,000 per square foot in Tokyo.

  2. We include these occupancy variables in the model below. The reader should be aware that the occupancy status refers to the property at time of sale. All properties purchased were converted to investor properties. That is, the variable for owner occupancy refers to a property that was owner-occupied at time of sale to a buyer who subsequently used it as an investor property.

  3. Both the GLVAR and CCAO data include the date of the sale. We exclude observations for which the recorded sales dates differ by more than 8 days. We use the GLVAR sale date to measure time on the market.

  4. Here we only show the price differential for the year 2000. In the empirical tests we include the price differential for the year in which the property was sold.

  5. Thus the index measures the absolute difference between a property’s characteristic and the average in the sample multiplied by the value of that characteristic from the OLS hedonic equation. We do not report the equation used to estimate the Haurin measure but it is a straightforward OLS hedonic equation.

  6. The log version of PRICEDIF variable is created by dividing the log of the out-of-state price by the log of the in-state price. Also, we add the value “one” to FIRE and GAR so that we can create the log transformation of these variables. Because the log of the square foot variables (house and lot) and the log of their squares would be perfectly correlated we create the transformation by squaring the log of the un-squared values. Finally, in this and subsequent tests the inclusion of some variables in the log version were nearly perfectly correlated with others and were, therefore, omitted in the log–linear version.

  7. We tested the linear model on two halves of the sample, upper and lower. The sample split with an equal number of properties in each half at approximately $165,000. In neither regression were search costs important while anchoring was significant only in the lower one-half sample (coefficient = 19.87, t-statistic = 3.53).

  8. We omit from the zip code list those that are the two suburban neighborhoods.

  9. The two suburban locations consist of relatively high-priced properties. For this reason there appeared, in our initial tests a high degree of multicollinearity. Several tests revealed that the best solution to this problem was a restriction of the sample to properties between $40,000 and $700,000.

  10. An unobserved variable that may affect TOM is “seller motivation.” This variable has been proxied in other studies by the list price/selling price relationship. Unfortunately our database does not include an original list price. While having such information may help explain the TOM equation it is unlikely to affect the search cost/anchoring variables in the price equation.

  11. An anonymous referee suggested testing the model by splitting the sample at the average TOM (44 days) to test the stability of the search cost/anchoring effects. Doing so showed no change in the results for the less than 44 days sub-sample. The upper portion of the sample produced no results because of multicollinearity.

References

  • Anglin, P., Rutherford, R., & Springer, T. (2003). The trade-off between the selling price of residential properties and time-on-the-market: The impact of price setting. Journal of Real Estate Finance and Economics, 26, 95–111.

    Article  Google Scholar 

  • Arnold, M. A. (1999). Search, bargaining and optimal asking prices. Real Estate Economics, 27, 453–481.

    Article  Google Scholar 

  • Asabere, P., Huffman, F., & Mehdian, S. (1993). Mispricing and optimal time on the market. The Journal of Real Estate Research, 8, 149–156.

    Google Scholar 

  • Baryla, E., & Zumpano, L. (1995) Buyer search duration in the residential real estate market: The role of the real estate agent. Journal of Real Estate Research, 10, 1–13.

    Google Scholar 

  • Dale-Johnson, D. (1983). Clientele effects on the demand for housing price appreciation. American Real Estate and Urban Economics Association Journal, 11, 382–396.

    Article  Google Scholar 

  • Glower, M., Haurin, D., & Hendershott, P. (1998). Selling time and selling price: The influence of seller motivation. Real Estate Economics, 26, 719–740.

    Article  Google Scholar 

  • Harding, J. P, Knight J. R., & Sirmans, C. F. (2003a). Estimating bargaining effects in hedonic models: Evidence from the housing market. Real Estate Economics, 31, 601–622.

    Article  Google Scholar 

  • Harding, J. P., Rosenthal, S. S., & Sirmans, C. F. (2003b). Estimating bargaining power in the market for existing homes. Review of Economics and Statistics, 85, 178–188.

    Article  Google Scholar 

  • Haurin, D. (1988). The duration of marketing time of residential housing. Journal of the American Real Estate and Urban Economics Association, 16, 396–410.

    Article  Google Scholar 

  • Huang, J.-C., & Palmquist, R. B. (2001). Environmental conditions, reservation prices and time on the market for housing. Journal of Real Estate Finance and Economics, 22, 203–209.

    Article  Google Scholar 

  • Jud, G. Donald, Seaks, T. G., & Winkler, D. T. (1996). Time on the market: The impact of residential brokerage. Journal of Real Estate Research, 12(13), 447–458.

  • Knight, J. R. (2002). Listing price, time on the market, and ultimate selling price: Causes and effects of listing price changes. Real Estate Economics, 20, 213–237.

    Article  Google Scholar 

  • Lambson, V. G., McQueen, G. R., & Slade, B. (2004). Do out-of-state buyers pay more for real estate? An examination of anchoring-induced bias and search costs. Real Estate Economics, 32, 85–126.

    Article  Google Scholar 

  • Miller, N. G., Sklarz, M. A., & Ordway, N. (1988). Japanese purchases, exchange rates and speculation in residential real estate markets. Journal of Real Estate Research, 3, 39–49.

    Google Scholar 

  • Myer, N. F. C., He, L. T., & Webb, J. R. (1992). Sell-offs of U.S. real estate: The effect of domestic versus foreign buyers on shareholder wealth. Journal of the American Real Estate and Urban Economics Association, 20, 487–500.

    Article  Google Scholar 

  • Read, C. (1988). Price strategies for idiosyncratic goods—The case of housing. Journal of the American Real Estate and Urban Economics Association, 16, 379–395.

    Article  Google Scholar 

  • Rothschild, M. (1973). Models of market organization with imperfect information: A survey. Journal of Political Economy, 18, 1283–1308.

    Article  Google Scholar 

  • Song, S. (1995). Determinants of bargaining outcome in single family housing transactions: An empirical examination. Urban Studies, 32, 605–614.

    Article  Google Scholar 

  • Song, S. (1998). Home buyers’ characteristics and selling prices. Applied Economics Letters, 5, 11–14.

    Article  Google Scholar 

  • Taylor, C. R. (1999). Time on the market as a signal of quality. Review of Economic Studies, 66, 555–578.

    Article  Google Scholar 

  • Turnbull, G., & Sirmans, C. F. (1993). Information, search, and house prices. Regional Science and Urban Economics, 23, 545–557.

    Article  Google Scholar 

  • Turnbull, G., Sirmans, C. F., & Benjamin, J. (1990). Do corporations sell houses for less: A test of housing market efficiency. Applied Economics, 22, 1389–1399.

    Article  Google Scholar 

  • Watkins, C. (1998). Are new entrants to the residential property market informationally disadvantaged? Journal of Property Research, 15, 57–70.

    Article  Google Scholar 

  • Yang, S. X., & Yavas, A. (1995). Bigger is not better: Brokerage and time on the market. Journal of Real Estate Research, 10, 23–33.

    Google Scholar 

  • Yavas, A. (1992). A simple search and bargaining model of real estate markets. Journal of the American Real Estate and Urban Economics Association, 20, 533–548.

    Article  Google Scholar 

  • Yavas, A., & Yang, S. X. (1995). The strategic role of listing price in marketing real estate: Theory and evidence. Real Estate Economics, 23, 347–368.

    Article  Google Scholar 

  • Zuehlke, T. (1987). Duration dependence in the housing market. The Review of Economics and Statistics, 69, 701–709.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Finance, University of Nevada Las Vegas, Las Vegas, NV, USA

    Terrence M. Clauretie & Paul D. Thistle

Authors
  1. Terrence M. Clauretie
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Paul D. Thistle
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Terrence M. Clauretie.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Clauretie, T.M., Thistle, P.D. The Effect of Time-on-Market and Location on Search Costs and Anchoring: The Case of Single-Family Properties. J Real Estate Finan Econ 35, 181–196 (2007). https://doi.org/10.1007/s11146-007-9034-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11146-007-9034-x

Keywords

Search

Navigation