Abstract
We examine the economic impact of non-consumable visual cues through home staging on
high-stakes housing transactions. Using hand-collected listing photos for 15,777 transactions and a machine-learning algorithm to detect furniture, we provide the first large-scale
evidence that staged homes sell for roughly 10% more and one week faster than comparable homes without furniture. Our pre-registered online experiment establishes causality
and uncovers mechanisms. We find that furniture clarifies spatial use, while decor enhances emotional attachment, jointly driving the higher willingness-to-pay. These findings
demonstrate how visual cues impact high-stakes decisions and systematically shape valuations in the largest asset market for households.
1. Introduction
Behavioral economics has advanced significantly in demonstrating how cognitive, psychological, and emotional factors systematically influence economic decision-making (Rabin (1998), Heath et al. (1999), Rabin and Schrag (1999), Kahneman (2003), Gneezy et al. (2014), Chang et al. (2016), and Hirshleifer (2020)). Yet, many foundational models of consumer choice still presume a high degree of rationality in high-stakes environments, where the sheer magnitude of the transaction, in theory, should discipline behavior and mitigate the impact of biases. This paper examines the economic impact of nonconsumable visual cues through staging, a common practice in the U.S. housing market, on high-stakes housing transactions.
House staging is the practice of furnishing and decorating a property for sale to create visual cues that help potential buyers imagine themselves living in the space. Importantly, the furniture and decor are classified as personal property, which consists of movable items that are typically not included in the sale unless explicitly stated in the contract. Standard asset pricing theory dictates that the value of a residential asset is a function of its fundamental hedonic characteristics (e.g., location, size, school quality, and structural condition), discounted by the user cost of capital (Sirmans et al., 2005; Poterba, 1984; Himmelberg et al., 2005). Rational agents should not price movable, non-consumable personal property (furniture and decor) into the value of the fixed asset, especially when such items convey no transactional value. However, the popularity of home staging, a common industry practice costly to the sellers or their agents, suggests a possible disconnect between theory and behavior. This disconnect gives rise to fascinating and largelyunanswered economic puzzles (Yun et al., 2021): Do homebuyers pay for things that they know they cannot consume? If so, what is the magnitude of this staging premium? In addition, what underlying mechanisms do these visual cues activate that lead to a higher willingness to pay? This paper aims to answer these questions by exploring homebuyer behavior in the largest asset market for most households.
Deviations from rational valuation can carry substantial financial consequences in the context of home buying. For the average U.S. household, purchasing a home is arguably the most significant financial decision: Zillow Home Value Index (ZHVI), a measure of the typical home value in the U.S., has grown to over $357,000 in the second half of 2022. The housing market also features high transaction costs, infrequent purchases, and the involvement of professional intermediaries such as real estate agents. These characteristics are commonly believed to mitigate the impact of behavioral biases. Hence, the housing market offers a real-world laboratory for testing the limits of market efficiency and rational decision-making.
An ideal experiment to establish the causal effect of house staging on prices would be to compare two identical houses in the same location: one staged and the other empty. Such an experiment would eliminate the confounding effect of location and unobserved house quality, allowing us to isolate the effect of staging on house prices. However, conducting such an experiment in a real-world natural setting is both financially and logistically prohibitive, if not impossible. One useful alternative that may convincingly approximate this experiment is to follow the historical transactions of each house and compare transactions with staged houses to empty ones, holding location and unobserved house quality constant. In particular, if prices are driven purely by location and unobserved differences in house quality, staging should have no effect on prices. In this paper, we start with the real-world transaction data by hand-collecting house listing images associated with each transaction for a set of houses across the U.S.3 We then complement our empirical analysis with an incentivized and preregistered randomized controlled trial (RCT) to disentangle the underlying mechanisms.
by Puja Bhattacharya, Sherry Xin Li, Yvonne Yu Wang, Cedric Wu, Xiang Zheng, SSRN | Read more (pdf):
[ed. Funny, I was always told the opposite - that potential buyers wanted open space to imagine their own living arrangements.]
