Housing market discount rates: Evidence from bargaining and bidding wars

Hans Koster and Jan Rouwendal

No 16133, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: When attempting to sell a house, setting a low or high list price presents a fundamental trade-off between achieving a lower sales price quickly or waiting for higher bids. We propose a parsimonious model to analyse the decision-making process of setting the list price, which is governed by a discount rate. Our model shows that this `gross' discount rate, which reflects the seller's motivation and the `pure' time preference, is a key factor in understanding the list price-setting decision. Using data from over 1 million housing sales in the Netherlands, we derive gross discount rates in both bilateral bargaining situations and bidding wars. Our results indicate that these discount rates range from 15-50%, are lower for highly educated sellers, and are higher for sellers who have moved before listing the property. We suggest that these high discount rates may be a result of the seller's unfamiliarity with the selling process and associated uncertainty, as well as the presence of listing costs.

Keywords: Home seller behaviour; List price; Sales price; Sales time; Time preference; Bidding wars; Undervaluation (search for similar items in EconPapers)
JEL-codes: H43 R21 R30 (search for similar items in EconPapers)
Date: 2021-05
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