Understanding Homeowners’ Pricing Decisions: An Investigation of the Roles of Ownership Duration and Financial and Emotional Reference Points

Abstract

In this research, we examined the interactive effects of duration of ownership with both financial (change relative to purchase price) and emotional (accumulation of positive vs. negative memories) reference points on home sellers' initial asking prices and the stickiness of those prices. We found convergent results in a field study of house listings in four US markets (Phoenix, Minneapolis, Philadelphia, and Wilmington) and a laboratory experiment. In particular, we found that after a long ownership duration, sellers ask for higher prices when they are in the gains domain than in the losses domain (a reversal of Prospect Theory), whereas after a short ownership duration, sellers ask for lower prices when they are in the gains domain than when they are in the losses domain.