The role of the list price in housing markets: Theory and an econometric model

Joel L Horowitz*

*Corresponding author for this work

Research output: Contribution to journalArticle

82 Scopus citations

Abstract

Houses are routinely sold at prices below, but rarely sold at prices above, their list prices. List prices appear to be price ceilings that preclude the possibility of sales at higher prices. This paper presents a theory of sellers' behaviour that explains why there are list prices in housing markets and why list prices are distinct from sellers' reservation prices. The theory forms the basis of an econometric model that has been estimated using data from the Baltimore, MD, area. The estimated model predicts sale and reservation prices conditional on list prices. The predictions of sale prices are considerably more accurate than those obtained from a standard hedonic price regression. The estimated model also explains why sellers may not be willing to reduce their list prices even after their houses have remained unsold for long periods of time.

Original languageEnglish (US)
Pages (from-to)115-129
Number of pages15
JournalJournal of Applied Econometrics
Volume7
Issue number2
DOIs
StatePublished - Jan 1 1992

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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