Residential Asking Rents and Time on the Market

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...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2009-05, Vol.38 (4), p.351-365
Main Authors: Allen, Marcus T., Rutherford, Ronald C., Thomson, Thomas A.
Format: Article
Language:English
Subjects:
Brokers
Economic models
Economic statistics
Economic theory
Economics
Economics and Finance
Financial Services
Housing
Housing market
Lessors
Literature reviews
Marketing
Multiple listing services
Prices
Purchasing
Real estate
Regional/Spatial Science
Rent
Rentals
Rents
Residential areas
Studies
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Summary: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.
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-007-9092-0