Discussion paper

DP16133 Housing market discount rates: Evidence from bargaining and bidding wars

We show that time preferences are paramount in understanding sellers' list price-setting. To measure discount rates from data on house sales, we set up a methodology that retrieves discount rates in settings of bilateral bargaining between one seller and one prospective buyer, as well as bidding wars where multiple prospective buyers make a bid. Using data on more than 1 million housing sales in the Netherlands with information on list prices, sales prices, and time-on-the-market, and addressing endogeneity concerns, we show that the implied short-run discount rates are between 30 and 60%. As these rates are an order of magnitude above the prevailing market interest rates, sellers seem to undervalue the gains associated with higher list prices that come at the cost of a longer average time-on-the-market.

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Citation

Koster, H and J Rouwendal (eds) (2021), “DP16133 Housing market discount rates: Evidence from bargaining and bidding wars”, CEPR Press Discussion Paper No. 16133. https://cepr.org/publications/dp16133