Axia Valuers

Identifying how the time on the market affects the selling price: a case study of residential properties in Paphos (Cyprus) urban area

Purpose – The purpose of this study is to investigate how the degree of overpricing (DOP) and other variables
are associated with the time on the market (TOM) and the final selling price (SP) for residential properties in the
Paphos urban area.
The hedonic pricing model was used to examine the association of TOM and SP with various factors. The
association of the independent variable of DOP and other independent variables with the two dependent variables
of TOM and SP were investigated via ordinary least squares (OLS) regression models. In the first set of models
the dependent variable was TOM and in the second set of models the dependent variable was SP. A sample of
N=538 completed transactions from Q1 2008 to Q2 2019 was used to estimate the optimum DOP that a seller
must apply on the current market value of a property in order to achieve highest SP price in the shortest TOM.
The results of this study also suggest that the degree of overpricing in thin and less transparent
markets is higher than that in transparent markets with high property transaction volumes. In mature markets
like the USA and the UK where the actual sold prices are published, the DOP is around 1.5% which is much
lower than the 11% DOP identified in this study.
Practical implications
It was found that buyers are willing to pay more for the same house in a bigger plot
than a bigger house in the same plot. The outcome is that smaller houses sell faster at a higher price per square
meter than larger houses. Smaller houses are more affordable than larger houses.
Social implications
There is a large pool of buyers for smaller houses than bigger houses. Higher demand
for smaller houses results in a higher price per square meter for smaller houses than the price per square meter
for bigger houses. Respectively the TOM for smaller houses is shorter than the TOM for bigger houses.
The database used is unique, from an estate agent located in Paphos that managed to sell
more than 27,000 properties in 20 years. This data set is the most accurate information for Cyprus’ property
Keywords Degree of overpricing, Time on the market, Asking price, Selling price, Thin market, Correlational
analysis, Multiple regression

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