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Housing Market Discount Rates: Evidence From Bargaining And Bidding Wars

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  • Hans R.A. Koster
  • Jan Rouwendal

Abstract

When selling a home, through the choice of the list price, sellers make a trade‐off between achieving a quick sale at a low price or waiting for higher bids. This list‐price setting decision is governed by a discount rate. Using data on housing sales in the Netherlands, we derive gross discount rates under bilateral bargaining and bidding wars. The estimated discount rates are 25%–35%, which are considerably higher than long‐run housing market discount rates and may result from the seller's unfamiliarity with the selling process. The rates are higher for sellers that already moved and have a low education.

Suggested Citation

  • Hans R.A. Koster & Jan Rouwendal, 2024. "Housing Market Discount Rates: Evidence From Bargaining And Bidding Wars," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 955-1002, May.
    • Handle: RePEc:wly:iecrev:v:65:y:2024:i:2:p:955-1002
    DOI: 10.1111/iere.12679
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    More about this item

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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