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 finding are reasonably robust for low-, mid-, and higher-valued rental properties.
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Notes
As a point of interest, in this data set, for the limited observations that listed subagent or buyers commissions, the most common commission offer to the subagent or buyers agent is 50% of the first months rent with a range of 25% to 100% of the first month’s rent.
The Heckman selection model corrects for selectivity bias by adjusting the conditional error terms using the inverse Mills ratio so that the conditional error terms will have zero means.
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Allen, M.T., Rutherford, R.C. & Thomson, T.A. Residential Asking Rents and Time on the Market. J Real Estate Finan Econ 38, 351–365 (2009). https://doi.org/10.1007/s11146-007-9092-0
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DOI: https://doi.org/10.1007/s11146-007-9092-0