Home Price, Time-on-Market, and Seller Heterogeneity under Changing Market Conditions
Florida Atlantic University - Department of Industry Studies
California State University, Fullerton - Department of Finance
Laval University - Department of Finance, Insurance and Real Estate
November 27, 2008
Journal of Real Estate Finance and Economics, Vol. 41, 272-293, 2010
This paper develops a formal model to examine the effect of changing market conditions and individuals' selling constraints on expected selling price and time-on-market. Using the concept of Relative Liquidity Constraint (RLC) - a stochastic variable that captures the randomness of future individual constraints and market conditions - the study presents the first ex ante analysis that extends the investigation of the issue of seller heterogeneity to the point of the buying decision, that is, from the perspective of the buyer's (future seller's) point of view. We show that seller constraint, as well as the uncertainty of such a constraint, significantly depresses the expected selling price and increases risk. Our closed-form formulas provide a set of simple quantitative tools that enable buyers and sellers to adjust the "market average" to their ex ante "individual expectations".
Number of Pages in PDF File: 37
Keywords: Home Price, Time-on-market, Seller Heterogeneity, Housing Market ConditionsAccepted Paper Series
Date posted: January 28, 2009 ; Last revised: February 12, 2011
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