Research shows buyers pay more for precisely priced homes
Got a house to sell but worry about standing out from the competition?
Consider this: A research team at Cornell University has found that people will pay more for a house if its listing price does not end in a bunch of zeros.
In other words, the researchers say, you might make more money if you price your house at $325,425 rather than $326,000.
“It’s a psychological bias,” said Manoj Thomas, an assistant professor of marketing at Cornell’s Samuel Curtis Johnson Graduate School of Management. “A bias in judgment.”
The study concluded that because people are used to precise numbers for items that don’t cost much and to round numbers for large amounts, consumers generally and home buyers specifically tend to perceive that a price is smaller if there are digits at the end instead of zeros.
“It does seem ridiculous,” Thomas said. “But when you see a price, your response is not always based on deliberative reasoning.”
Thomas said the results were confirmed in lab tests with 134 graduate students and by examining 27,000 real estate transactions in two markets ” South Florida and Long Island, N.Y. ” where most list prices had three ending zeros. (The researchers didn’t consider prices ending in nine because of a separate consumer bias regarding those numbers.)
In South Florida, having at least one zero at the end of the list price lowered the final sale price by about 0.72 percent compared with houses listed at a similar price; having three zeros lowered it by 0.73 percent. In Long Island, the impact was smaller.
What’s that mean in terms of cash? According to the authors, if there is one house with a list price of $485,000 and another with a list price of $484,700, “Our results suggest that the house with the more precise list price will sell for about $1,380 more” than the house with the three zeros at the end.
The Cornell study, published in September, got some buzz when its findings appeared in the January-February issue of the Atlantic. But the online brokerage Redfin looked at 30,000 home sales in Seattle last March and found that homes with an asking price ending in $500, such as $391,500, “had the highest sales-price-to-asking-price ratio.”
The company’s Web site touted the Cornell research and now urges home sellers to price homes at the $500 mark. “This consistently is our advice now,” said Catherine Jardine, one of Redfin’s regional marketing managers.
Redfin also urges clients to price “just under the major price points” used by Web sites to get the most viewers. Many real estate Web sites list homes in ranges, divided by $25,000, $50,000 and $100,000 limits, Jardine said, “so you want to come in just under those, and end in $500.”
Paul Bishop, senior economist for the National Association of Realtors, said he isn’t familiar with the price studies or a connection between precise list prices and higher sales prices. But he’s not knocking the ideas, either. “It sounds like they’re tapping into some kind of behavioral pattern,” Bishop said. “Maybe that kind of pricing grabs people’s attention to begin with.”
He added a caveat: “My sense is that for the average home seller, there’s probably more-significant things they can do to sell their houses than this.” He said other factors include how the house is presented for sale and marketed and how its value compares with others in the neighborhood.
Creig Northrop, a Long & Foster agent with offices around the Washington region, doesn’t buy the Cornell theory. He said precise numbers may work “for Wal-Mart and car dealerships,” but he’s sticking with round numbers.
Robert White said he took Redfin’s pricing advice when he listed his two-bedroom, two-bath townhouse in Arlington, Va. “I was going to list it at $425,000, but by knocking it down to $424,500,” the house ended up in a category that would seem more affordable to more people by falling into the lower Web listing range, the first-time seller said.
White’s house went on the market in early January and drew a bid eight days later; he signed a contract two days later. He said he followed Redfin’s advice on the $500 price point because “I think every little bit helps in this market. … I don’t think it’s what sold the house, but I think it’s worth a shot.”
The Cornell paper says its results “have important substantive implications for buyers and sellers.”
“Buyers (and their agents) should be more cautious in their price magnitude judgments in light of our results. Sellers (and their agents) can strategically ‘precise up’ their prices, i.e., choose a higher precise price rather than a lower round price.”
However, the researchers note, “if some sellers are smart enough to figure this out, it should be a matter of time before others do, too.”
– – –
The full Cornell report is at papers.ssrn.com/sol3/papers.cfm?abstract(underline)id1011232.
Support Local Journalism
Support Local Journalism
Readers around the Lake Tahoe Basin and beyond make the Tahoe Tribune's work possible. Your financial contribution supports our efforts to deliver quality, locally relevant journalism.
Now more than ever, your support is critical to help us keep our community informed about the evolving coronavirus pandemic and the impact it is having locally. Every contribution, however large or small, will make a difference.
Your donation will help us continue to cover COVID-19 and our other vital local news.
Start a dialogue, stay on topic and be civil.
If you don't follow the rules, your comment may be deleted.
User Legend: Moderator Trusted User
INCLINE VILLAGE, Nev. — Incline Village General Improvement District Trustee Kendra Wong gave an emotional statement in defense of district staff during Wednesday’s board meeting.