There are two things that selling real estate ultimately comes down to… location and pricing, right? While you can’t do much about location, you’ve got control over price. But, are you using this powerfully persuasive pricing strategy to sell your listings quicker, and at or near your asking price?
A couple of University of Florida marketing professors Chris Janiszewski and Dan Uy dove in and did some extensive study and research into the effect price has on a person’s perceived value of the item being sold and at what prices they’re more willing to, you guessed it, buy.
I strongly encourage you to head over to the Scientific American article Why Things Cost $19.95 and check it out but here’s the lowdown of what they found when it comes to pricing your listings:
As Janiszewski and Uy explain… people appear to create mental measuring sticks that run in increments away from any opening bid, and the size of the increments depends on the opening bid. That is, if we see a $20 toaster, we might wonder whether it is worth $19 or $18 or $21; we are thinking in round numbers. But if the starting point is $19.95, the mental measuring stick would look different. We might still think it is wrongly priced, but in our minds we are thinking about nickels and dimes instead of dollars, so a fair comeback might be $19.75 or $19.50.
The psychologists decided to check these lab findings in the real world. They looked at five years of real estate sales in Alachua County, Florida, comparing list prices and actual sale prices of homes. They found that sellers who listed their homes more precisely - say $494,500 as opposed to $500,000 - consistently got closer to their asking price. Put another way, buyers were less likely to negotiate the price down as far when they encountered a precise asking price. Furthermore, houses listed in round numbers lost more value if they sat on the market for a couple of months. So, bottom line: one way to deal with a buyer’s market may be to pick an exact list price to begin with.
Pretty cool, eh?
Here’s something to keep in mind with this… while the study looked at price it really isn’t about what folks are willing to pay so much as it is how the price you choose lends itself to the perceived value of your listing.
Marketing is all about managing the percevied value and now you have another weapon in your arsenal to help you sell your homes quicker, easier and for a price that makes you and your clients smile that much more.
I’d love to hear your findings when it comes to pricing your listings. Even better, what else can you do to increase the persuasiveness of a listing?
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{ 2 comments… read them below or add one }
Mark, I enjoyed your comment over at AG. I am so jealous you got to experience the punk scene first-hand (No Doubt played your backyard - awesome!). I also would like to see you share the Guerilla Marketing book with your reader here, in addition to your Inman audience.
However, I disagree with the pricing arguments in this post. We all know that buyers determine value by what they are willing to pay for real estate at a point in time. As a listing agent, I think it is your duty to expose the property to as many potential buyers as possible. It is not your duty to get within a certain % of your list price, buyers and sellers will determine the sales price and not listing agents. Stick with me…
Let’s assume in the example above that the house listed for $494,500 actually sells for $493,000 (really close the list price). I still contend that listing agents prepare their sellers for the expected sales price value ($493,000). But they would do much better service to their seller if they listed the property at $500,000.
Why list at $500,000 if you know the value to be $493,000ish> Because your job as a listing agent is to expose the property to as many potential buyers as possible. And I have never met a buyer (or buyer’s agent) who searches for real estate in $5,000 increments. By listing the property at $494,500 think of all the $500,000 to $525,000 buyer searches that will MISS your listing. By pricing real estate on the whole number (and in $25,000 increments), you expose the property to a much wider buyer audience.
In this example, the seller would capture buyers searching $475,000 to $500,000 and also the $500,00 to $525,000. In essence, you could possibly double the exposure by pricing $5,500 higher than you know it will sell for. Negotiating 1% to 1.5% of a list price is well worth exposing your property to more potential buyers, IMO.
Thoughts?
@Brad Nix - very on point with your comment, brad, and it makes sense. however, precise pricing isn’t just about getting near asking price. in the study we’re told that the homes priced more precisely also sold faster while round numbered homes sat on the market much longer… an important point.
so, through precise pricing you may reduce the total number of unique views but those that do view the home become more inclined to “agree” with the price and mentally move towards ownership.
obviously, it also comes down to how you like to market… maximum exposure versus more “qualified” exposure.
consider this another tactic to add to your arsenal because at the end of the day what matters is if it sold.