Listing strategies and housing busts: cutting loss or cutting list price?

Abstract

Listing house for sale has been referred to as being among the most agonizing and stressful decisions of homeowners that go with home sale. This may seem particularly true for homeowners expecting to sell for less than their original purchase price. In this paper, we investigate whether listing strategies among homeowners who face potential loss differ from those who do not. We use MLS data from the Randstad area of The Netherlands for the period 2008 -2013 for which we have detailed information regarding the listing strategies. We find that homeowners who expect potential loss upon sale set higher initial list prices by 10% on average than those homeowners who do not. However, only motivated sellers with prospective loss upon initial listing are more likely to revise their list prices downward than other sellers. Given list-price revision occurs, sellers who are exposed to potential loss tend to cut list prices more aggressively than sellers who are not. Finally, despite revealed aggressive list-price cutting by sellers with potential loss, we show that the effect of potential loss is present throughout property listing process such that potential loss faced by sellers impacts property final list price.