Topic: Price Negotiations in Housing Markets: Estimation of Offer Curves, Reservation Prices, and Bargaining Powers for Buyer and House Types
Speaker: Dr. Abdullah Halit Gökçınar Meeting
Time: Feb 1, 2022 04:30 PM Istanbul
Meeting ID: 654 774 6234
Title. Price Negotiations in Housing Markets: Estimation of Offer Curves, Reservation Prices, and Bargaining Powers for Buyer and House Types
Authors. Gokcinar A, Cakanyildirim M, Karabuk S
Abstract. Price negotiations, studied as non-cooperative games or behavioral laboratory experiments in the literature, are rarely analyzed empirically, because alternating price offers usually have remained unrecorded in real-life. Recently adopted bargaining features in online marketplaces routinely record offer data as well as attributes of the negotiators and transactions. Obtaining such data from a real-estate company, we empirically analyze sequential price bargains for houses between the company (institutional seller) and individual buyers. In each bargain, parties (the seller and buyer) take turns to make concessions until one of them terminates the bargain by accepting the other’s offer or by exiting. Our analyses of concessions and terminations respectively yield that parties make diminishing and absolutist (independent of current counteroffer) concessions, whereas they make relativist terminations. These results are robust when tested separately for different buyer and house types, except that certain buyer types make absolutist terminations. We explain relativist (resp. absolutist) acceptances via high (resp. low) sensitivity to the looming deal price, and relativist (resp. absolutist) exits by scarcity (resp. multitude) of available alternatives. The empirical properties allow us to connect a party’s offers to her reservation price via a simple offer curve. Offer curves based on training data fit well to offers in test data as indicated by as low as 1% mean absolute percent errors. Lastly, offer curves allow estimations of reservation prices and bargaining powers depending on buyer and house types. Our estimations show that; a buyer paying in cash and starting with a rounded and low initial offer for a high-DOM house is likely to have a lower reservation price than others, while another buyer paying with a subsidized loan for a low-DOM and low-price house is likely to have a lower bargaining power than others. Providing offer, reservation price, and bargaining power estimations, offer curves could lead to a decision support tool for bargaining decisions.