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Clustering in Real Estate Prices: Determinants and Consequences

22 Pages Posted: 3 Jan 2007  

Oded Palmon

Rutgers Business School

Barton A. Smith

University of Houston - Department of Economics

Ben J. Sopranzetti

Rutgers Business School: Newark and New Brunswick

Abstract

This study examines the determinants and consequences of price clustering. Real estate list and transaction prices exhibit two price-ending characteristics: even (000-ending) and just-below-even (900-ending). The use of even-ending prices is negatively related to the precision of the price estimates and the cost of rounding. However, the tendency to use just-below-even-ending prices is related to the cost of rounding and to listing agency characteristics. The transaction price and the number of days on market are associated with list price clustering and with listing agency characteristics. Most properties are listed at just-beloweven-ending prices, but those listed at even-ending prices sell faster and at a higher price. Finally, better transaction outcomes are positively associated with the number of area-properties listed by the seller's real-estate agency.

Keywords: price clustering, list price, transaction price, price estimate

JEL Classification: L85, Q11, R11, R12, R15, R21, R31

Suggested Citation

Palmon, Oded and Smith, Barton A. and Sopranzetti, Ben J., Clustering in Real Estate Prices: Determinants and Consequences. Journal of Real Estate Research, Vol. 26, No. 2, 2004. Available at SSRN: https://ssrn.com/abstract=954122

Oded Palmon (Contact Author)

Rutgers Business School ( email )

Room 5123
100 Rockafeller Road
Piscataway, NJ 08854
United States
848-445-4209 (Phone)
848-445-3907 (Fax)

Barton A. Smith

University of Houston - Department of Economics ( email )

Houston, TX 77204-5882
United States

Ben J. Sopranzetti

Rutgers Business School: Newark and New Brunswick ( email )

100 Rockafeller Rd
Piscataway, NJ 08854
United States

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