Ken H. Johnson

Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise?

Homeownership is touted as the “American Dream.” It is credited with enhancing wealth; increasing civic pride; and improving self‐esteem, crime prevention, child development and educational outcomes, among other benefits. This article does not dispute any of these claims. Instead, this study hypothesizes that crowding toward homeownership raises the price of homes above their fundamental value resulting in the purchase of a home becoming a contraindicative action. After setting the holding period to the average Americans tenure in a residence, renting (not buying) proves to be the superior investment strategy over most of the study period.

Listing Contract Length and Time on Market

Miceli (1989) in a search for the optimal time to allow a broker to market property provides a theoretical model which posits that the principal (seller) may use the length of the listing contract to motivate the agent (listing broker) to better align incentives. Expanding slightly on Miceli, this present work predicts that longer time allotted the broker to market residential property will decrease broker effort resulting in lower search intensity and eventually a longer marketing span for property, ceteris paribus. This prediction is borne out across three empirical modeling methodologies commonly used in time on market studies.

On the Likelihood of a Transaction and the Amount of Time Provided the Broker to Sell Property

This work empirically investigates the effect of the amount of time provided the broker to market property (listing contract length) on the likelihood of a successful marketing attempt. Do shorter listing contracts increase broker motivation or can contracts be so short that marketing efforts are unlikely to result in a successful transaction? Empirical results of this study demonstrate that when the broker is provided a longer listing contract, the likelihood of a successful transaction increases - but at a decreasing rate. This result suggests that home sellers face a tradeoff when choosing contract length. Longer contracts provide more time to arrange a successful sale, but reduction in broker motivation reduces the probability of sale as contracts lengthen.