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It’s Time to Rethink How We Price Our Listings

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  1. Great info here and excellent advice!

  2. I could not agree with you more. I have been saying this to sellers for awhile now. However, I often get asked what the psychological ramifications are. For example, A home priced at $249,900 sounds better than $250,000. Logically it seems crazy that a $100 price difference is important but there is some gut reaction that tells you that $249,900 is way better than $250,000. I’ve been wondering what the true psychological effect of pricing is and if it could be quantified. Then you could weigh that against the benefit of being priced at a number that shows up in more searches. Nice article Marianne.

  3. Been wondering about this for years, have never seen any benefit to listing a home for $149,900 instead of $150. Why deliberately eliminate that seller’s home from the public or the Realtors that do a search with parameters of $150 to $170 or $150 to $200. I have always felt this way regardless of the technology, the technology just makes it more obvious.

    Great article Marianne!

  4. Keoki, I don’t think there is a psychological effect. I completely agree with Marianne. Sellers are missing the boat by pricing into one category when they could have access to two different marketing strata.

  5. Joe Horne

    Getting all on board with this probably isn’t going to happen so adopt this idea and add $1K to your search on each side just to be safe for your clients. Eg. 149K-201K
    Thanks

  6. Mrk E. Dougherty

    Want to get your seller a higher price? Try a novel concept called “precise pricing.”

    Three researchers from Cornell University released a study last year that asked the question, “Do Consumers Perceive Precise Prices to be Lower than Round Prices?” To make a long, mathematical abstract short, the answer is yes. Researchers Manoj Thomas, Daniel H. Simon, and Vrinda Kadiyali found that precision or roundedness of prices affected people judgments of magnitude, and these biased judgments affected their behavior in their willingness to buy.
    Using data from more than 27,000 residential real estate transactions in two separate markets (South Florida and Long Island, NY), the study found that buyers pay higher sale prices when list prices are more precise. This suggests that buyers perceive precise list prices to be lower, and therefore accept sale prices that are closer to the list price. For example, consider the following example: a seller lists the house for a precise price such as $395,425, compared to the more round price of $395,000. The results show that participants judged precise prices to be smaller than similar, but larger, round prices.
    Everybody is already aware of the retail pricing trick the researchers called the “nine-endings” effect, where an item is priced at $4.99 instead of $5.00. So the study excluded pricing of homes like $299,999. Instead, one group focused on prices like $390,000, $395,000, $400,000, $501,298, $505,425, and $511,534 while the other group evaluated $391,534, $395,425, $401,298, $500,000, $505,000, and $510,000.
    The evidence from the study showed that participants systematically judged the magnitudes of the precise prices to be significantly smaller than the round prices, and the researchers wanted to know if a precise price would have a positive effect on buyers’ willingness to pay, because buyers will perceive precise prices to be lower.
    Thomas, Simon, and Kadiyali said there might be a couple of other explanations for the effect of price precision on the buyer’s willingness to pay: the low-price signal and the expected negotiability hypotheses. The low-price signal hypothesis suggests that buyers might perceive precision to signal the seller’s attempt to set the price as low as possible. In other words, a precise price might reflect the pricing strategy used by a cost-conscious seller who is offering a good deal.
    On the other hand, the expected negotiability hypothesis suggests that buyers might consider precision as a signal of sellers’ unwillingness to negotiate. For example, when presented with a list price of $325,573, a buyer might reason: “If the seller’s expectation is so meticulously defined, then there is little scope for negotiation.” As a result, buyers are more likely to accept a higher sale price.
    Of course, precise pricing might also turn off some REALTORS®. “I’ve seen prices like $433,779,” said one REALTOR®. “It indicates its going to be a difficult transaction from beginning to end.” Another reported, “That would be a real turnoff. Then, you’re talking about someone who’s going to be arguing about leaving a curtain rod.”
    Remember that residential real estate sales include two sets of prices for each transaction: a list price and final sale price. If buyers perceive precise list prices to be low, then they are likely to accept higher sale prices. If buyers view round list prices as relatively high, then we would expect buyers’ willingness to pay to be lower, leading to lower sale prices. Since no two houses are identical, buyers never face a situation where the same house is available at two different prices. This is important because if the identical house is available at two different prices, the consumer will clearly choose the lower-price option.
    The results of the study indicated that for the same list price, if one price is more round than the other, than the house with the more round list price will sell at a lower price. To see what this means consider two houses – one with a list price of $485,000 and the other with a more precise list price of $484,700. The research suggests that the house with the more precise list price will sell for about $1,380 more.
    Thomas, Simon, and Kadiyali conclude that these results have important implications for buyers and sellers and their agents. For example, sellers (and their agents) can strategically “precise up” their prices, i.e. choose a higher precise price rather than a lower round price.
    But will this work in the real world? Maybe. It’s worth a try.

  7. This is so logical I don’t know why it has taken to long to catch on, except that sellers insist on the “psychological” advantage of being just a little under the price that might put them in two searches. Another advantage is that it would be less likely to have the property priced same as several others whose listers still subscribe to the “$X,995, $X,990 or $X,999″ theory.

  8. i like to put a number like 249123.the reason being when Realtors or buyers who are searching the mls it sticks out when everything else is 249900
    269900
    239900
    249123
    225000
    224900

  9. Marianne, you make a valid point. but it only applies to those that fall on the edges regardless if it is $10,000 or $25,000 separations. This will not apply for example to 205,000, 210,000, or 215,000 etc. or anything in between. In our area the LP/SP ratio is running on the average about 94% at this time depending on the finance type so most people are looking slightly over their desired range to cover this issue. Unfortunately it also sets the stage for buyers in a buyer market to push the envelope.

  10. Pat

    I’ve been saying this for years. Even when Realtors do an MLS search they do so with even numbers. At 250k you get the folks searching from 240-250 and the folks searching from 250-260. Twice as many hits is a good thing. The best price is one that can evenly be divided by 10k.

  11. Joe Kerouac

    I’ve been doing this since the early 2000′s, Marianne and couldn’t agree with you more. Obviously I have clients that decide to list at a price somewhere in between a $25K range once in a while, but most go with the theory that you and I share when I lay out the logic of it.

    I have not seen any negative side to it when it comes to offers or negotiations…as long as it is within the $25K range it should be in. If you have a seller agree to the concept, but opts to use the concept and price at the next range or two up from the recommended, well then it is a different story as we all know and have been through at some point or another.

    Great piece.

  12. Great article, Marianne!

    Used this in a price reduction earlier this year, because initially we were at the bottom of what people could afford and were not chosen. When we were at the top of what people could afford, we sold quickly.

    Many thanks again!

  13. Mark

    wouldn’t it be better to set the search criteria at something like “within $25,000 more or less than (buyer budget) price”. The buyers sort of know what they can spend and are looking for houses close to that price range but always want to find a good deal or may spend more than their budget if they find a home they love.

  14. Alma Phillips

    Doughtry, That is a very confusing post. Are you saying
    we should use round off numbers or use all those numbers?

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