Search Benefit in Housing Markets: An Inverted U-Shaped Price and TOM Relation

Abstract

The nature of the relationship between a property’s selling price and its marketing time in the housing market remains an open question to date, despite almost 40 years of inquiry and hundreds of regressions conducted on various data sources. This study attempts to settle the long-standing open question by examining the issue from a new perspective. We demonstrate that the true price-TOM relationship should be nonlinear and characterized by an inverted U-shaped curve wherein the selling price increases with TOM up to a certain threshold, reflective of a positive exposure effect and decreases thereafter to reflect a negative stigma effect. This relationship is borne out in an empirical analysis using a large sample of home sales from the Hampton Roads, Virginia metropolitan area during an extended period of time. We then formulate hypotheses about the benefit of search by home sellers, which are subsequently confirmed by the empirical findings.

Keywords: Search Benefit; Housing Prices; Time-on-market

JEL Classification: E3; O18; R3