Residential Asking Rents and Time on the Market

Posted: 20 Nov 2008

See all articles by Marcus T. Allen

Marcus T. Allen

Florida Atlantic University - Finance & Real Estate

Ronald C. Rutherford

University of Texas at San Antonio - Department of Finance

Thomas A. Thomson

UTSA College of Business

Date Written: November 17, 2008

Abstract

Landlords offering a house in the rental market face a difficult strategic pricing decision. The revenue maximizing decision for the landlord involves a tradeoff between the rental rate and time on the market. Because the turnover of renters is higher than owners, and because the landlord must bear some carrying costs on a vacant house, pricing the rent too high may decrease revenue due to a higher vacancy period and pricing it too low may reduce the revenue when occupied. While there is substantial research on the relationship between listed prices and time on the market for freehold interests, this is the first study to provide empirical evidence on the relationship between asking rent, contract rent and time on the market for single family residential rental (leasehold) property interests. We present two models; a rental price model and a duration model for time-on-the market. Using data from the Dallas-Fort Worth area we find that landlords who set a lower asking rent relative to predicted rent can expect a shorter marketing period for their properties. The results also indicate that overpricing the asking rent and then lowering it at a later date leads to a longer marketing time (after the reset) and often a lower rent. These findings are reasonably robust for low-, mid-, and higher-valued rental properties.

Keywords: time on market, duration model, hedonic model, atypicality, residential rent, asking rent

Suggested Citation

Allen, Marcus Tillman and Rutherford, Ronald C. and Thomson, Thomas A., Residential Asking Rents and Time on the Market (November 17, 2008). Journal of Real Estate Finance and Economics, Vol. 38, No. 4, 2009, Available at SSRN: https://ssrn.com/abstract=1303018

Marcus Tillman Allen (Contact Author)

Florida Atlantic University - Finance & Real Estate ( email )

2912 College Ave
Davie, FL 33314
United States
954-236-1063 (Phone)
954-236-1298 (Fax)

Ronald C. Rutherford

University of Texas at San Antonio - Department of Finance ( email )

San Antonio, TX 78249
United States

Thomas A. Thomson

UTSA College of Business ( email )

Real Estate Finance and Development Program
One UTSA Circle
San Antonio, TX 78249-0637
United States
210-458-5306 (Phone)
210-458-6320 (Fax)

HOME PAGE: http://refd.utsa.edu

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