Time on the Market and List Prices in “Hot” Real Estate Markets

In this paper we provide a novel micro-foundation for outcomes commonly regarded as indicating a ``hot'' real estate market. We present a simple auction model in which list prices partially commit the seller, requiring acceptance of the highest offer at or above the list price but allowing rejection of offers below it. With such partial seller commitment no buyers bid just below list price, creating a discontinuity in the equilibrium bid function and pushing up some bids while pushing down others, among other effects. We show the seller resolves this trade-off with a choice of a list price that generates comparatives statics typical of hot markets: more buyers cause list and sales prices to increase, the ratio of sales to list price to increase, and time-on-the-market to decrease