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The Benefit of Search in Housing Markets

Ping Cheng (), Zhenguo Lin (), Yingchun Liu () and Michael J. Seiler ()
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Ping Cheng: Florida Atlantic University
Zhenguo Lin: California State University, Fullerton
Yingchun Liu: Laval University
Michael J. Seiler: The College of William & Mary

Journal of Real Estate Research, 2015, vol. 37, issue 4, 597-622

Abstract: Unlike in an efficient market where buyers and sellers are mere price-takers, participants in the real estate market are able to influence ultimate transaction prices through individual search efforts. Such benefit can offset the negative price trend of a declining market and compound the positive price trend of a growing market, suggesting an asymmetric effect of the price-TOM relationship. In other words, search mitigates the down side risk and magnifies the upside potential for the seller, which is an important advantage for real estate investors. This study uncovers the asymmetric price-TOM relationship, and demonstrates the value of search with empirical data from the residential real estate market. Based on a large sample of home sales in the Virginia Beach-Norfolk metropolitan area during an extended period of time, our findings clearly reveal an asymmetric search effect on price: longer TOM is strongly correlated with higher selling prices, but more interestingly, even in a declining market, the effect of the search (or the impact of TOM) on price is still positive, albeit smaller, suggesting the benefit of search is more than enough to potentially offset a negative market impact.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2015
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