A Spatiotemporal Solution for the Simultaneous Sale Price and Time-on-the-Market Problem

There exists an important methodological challenge when dealing with sale price and time-on-the-market variables because both variables are simultaneously determined and related to the motivation of the sellers and buyers. Exploiting the fact that transactions occur over space and time, we propose a two-stage approach based on instrumental variables (IV) built from information collected from previous transactions. The unidirectional temporal property and the fact that other transactions are exogenous from the perspective of a single buyer or seller are exploited to evaluate the effect of the sale price on time-on-the-market, and the effect of time-on-the-market on the sale price. Based on 29,471 transactions occurring in the suburban neighborhood of Montreal (1992-2000), the results suggest that, everything else being equal, houses staying longer on the market provide negative information to the market, which results in a lower final sale price, while the final sale price is negatively related to time-on-the-market, indicating that houses of better quality (better amenities) stay less time on the market.