Days on Market and Home Sales

Abstract

In April 2006, the real estate listing service in Massachusetts adopted a new policy that prohibits home sellers from resetting their properties' "days on market" through relisting. We study the effect of this new policy on home sales along the Massachusetts-Rhode Island border, using homes in Rhode Island, which did not change its relisting policy, as the control group. We find that Massachusetts homes that were on the market at the time of the policy change suffered an average reduction of $16,000 in sale price relative to their Rhode Island counterparts. Homes that were revealed to be slow-moving suffered a greater reduction, but fresher listings only had a small increase in sale price. One reason is that some buyers were unaware of sellers' manipulation of days on market and were thus unable to recognize home listings that were authentically fresh. A direct homeowner survey confirmed that buyer awareness was indeed lacking. Sellers reacted to the new policy by lowering their initial listing price to sell fast. However, in towns where listing price history was more transparent, sellers set a higher listing price to dampen the negative signal of slow sales.

Keywords: Keywords: Real estate, Days on market, Herding, Information disclosure, Natural experiment