The dynamics of real estate pricing

Abstract

This study is a detailed examination of pricing dynamics in real estate markets, particularly in the housing market with a focus on the shortcomings of standard pricing models. Two behavioral tendencies, even pricing and precision avoidance, are established in real estate markets. The tendencies are documented, quantified and shown to be an anomaly in real estate markets. The determinants of the tendencies are attributed to negotiation and cognition processes. Dynamics of spatial dependence are examined through a spatial analysis of housing using geo-locations of properties. Determinants of spatial dependence are identified and quantified. As a behavioral real estate study, this study also presents findings on to the generalizability of the theories in different markets, such as in different cultures or in developed or emerging markets.