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The Benefit of Search in Housing Markets

Author

Listed:
  • Ping Cheng

    (Florida Atlantic University)

  • Zhenguo Lin

    (California State University, Fullerton)

  • Yingchun Liu

    (Laval University)

  • Michael J. Seiler

    (The College of William & Mary)

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.

Suggested Citation

  • Ping Cheng & Zhenguo Lin & Yingchun Liu & Michael J. Seiler, 2015. "The Benefit of Search in Housing Markets," Journal of Real Estate Research, American Real Estate Society, vol. 37(4), pages 597-622.
    • Handle: RePEc:jre:issued:v:37:n:4:2015:p:597-622
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    Citations

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    Cited by:

    1. Ralph Siebert & Michael J. Seiler, 2020. "Why Do Buyers Pay Different Prices for Comparable Products? Evidence from the Housing Market," CESifo Working Paper Series 8337, CESifo.
    2. Ralph B. Siebert & Michael J. Seiler, 2022. "Why Do Buyers Pay Different Prices for Comparable Products? A Structural Approach on the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 65(2), pages 261-292, August.
    3. Wei-Ling Tsou & Chen-Yi Sun, 2021. "Consumers’ Choice between Real Estate Investment and Consumption: A Case Study in Taiwan," Sustainability, MDPI, vol. 13(21), pages 1-13, October.
    4. Xin He & Zhenguo Lin & Yingchun Liu & Michael J. Seiler, 2020. "Search Benefit in Housing Markets: An Inverted U‐Shaped Price and TOM Relation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(3), pages 772-807, September.
    5. Ping Cheng & Zhenguo Lin & Yingchun Liu, 2021. "Competing Selling Strategies in the Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 63(3), pages 394-413, October.
    6. Donner, Herman, 2017. "Determinants of a Foreclosure Discount," Working Paper Series 17/2, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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