Pricing, Exposure and Residential Listing Strategies

Abstract

Sellers of houses signal their motivation or willingness to sell through price and contractual provisions in their listing agreements. A pricing strategy is for motivated sellers to set their listing prices at or below estimated market values as determined by the quality and other characteristics of the house. An exposure strategy is to set a listing price above estimated market value, and increase advertising and broker activity in order to generate more favorable offers. Pricing and exposure are competing strategies and may be revealed in listing contracts through the inclusion of a buyer-broker provision.

Empirical results for the Washington, D.C. area indicate that brokers concentrate their time on sellers following the pricing strategy as opposed to those who follow the exposure strategy. There is a tradeoff between price and exposure. The results demonstrate a positive relationship between increasing listing price and using buyer brokerage.