The effect of different pricing strategies in the Dutch housing market

The use of reserved price strategies gained popularity in the Dutch housing market. The more common asking price strategy is still widely applied and gives potential buyers the opportunity to negotiate below a listed asking price. Since the market can be characterized as cold and the average time that it takes to sell the property (Time on Market) has increased from 86 days in 2007 to 176 days in 2013, sellers and brokers are looking for new pricing strategies. In 2014 one of every fifty houses was sold on a reserved price basis, where a fixed minimum was the starting point for negotiation. The aim of this research was to measure the effect of using different pricing strategies on the actual sales price and the TOM. For this purpose data was collected on 5.316 reserved price transactions and 24.582 sales prices transactions covering the period 2009-2014. Hedonic regression modelling was used to estimate the effect of pricing strategy on the sales price and Time on Market. In our analyses we controlled for variables that might potentially bias our results. Results show that using the reserve price method the Time on Market decreases with more than 50% compared to using the asking price method. The average reduction of the sales price, using reserved pricing, is 4,4%. These results give clarity for sellers of houses in their tradeoff between price concessions that they are willing to take and the expected reduction of the time that is required to sell the house.