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The psychology of pricing—or the idea that different prices influence our perceptions and actions—isn’t just a woo-woo concept peddled by marketing enthusiasts. Researchers have actually studied how pricing impacts consumer behavior extensively. Just look at these 42 pricing psychology examples backed by hundreds of academic journals.
Pricing real estate, however, is its own beast to tame. You aren’t selling a cup of coffee for a buck and a half…there’s hundreds of thousands of dollars on the line. When you go to set an asking price, your North Star is to determine fair market value, achieved with the help of your real estate agent’s analysis of comparable sales. Shoot too high and you could risk sitting stagnant on the market, and that’s usually a seller’s Achilles heel.
But there are a few real estate pricing strategies we vetted with top agents and through valid research (and even listing data) that fall more into the territory of psychology. While gimmicks won’t do you any favors, some subtle tweaks to your price may help you convey the right message. It can be as simple as whether the number you choose is highly specific vs. perfectly rounded, ends in “99,” or seems (magically) soft lobbed right into a buyer’s search filters.
1. Use ‘charm pricing’ with a twist
When cruising the aisles at the grocery store, ever notice how many prices end in 99s? That’s no accident. This strategy is called charm pricing and relies on the truism that $5.99 sounds less expensive than $6.00, even though the difference is only one penny.
But does this theory translate to real estate? An analysis of four million home sales showed that yes…you’d actually be wise to round your list price down to the nearest $9,000. So if you were to determine your fair market value was $450,000, you’d want to go for $449,000.
There are a couple reasons for this. The first is thought to be the psychological effect of charm pricing—simply put, 99s = cheap!
Secondly, since buyers often cap their budget at a rounded number like $450,000, your house might show up in more online searches if you price right below it. That said, you don’t have to go crazy with the 9s (like $259,999).
Anecdotally speaking, top-selling Atlanta real estate agent Trent Aldridge supports this strategy: “I think one of our biggest hurdles would $450,000. Listings priced under four $450,000 seem to sell a lot quicker than listings over $450,000,” he said.
However, you might want to avoid this tactic if you’re pricing a high-end property. A 2015 study found that consumers are more likely to feel good about spending $40.00 on a bottle of champagne than $39.72 or $40.28. In this case—buying a luxury item—using a round number was a winning strategy.
2. Price with precision
A 2007 study of 27,000 real estate transactions showed that buyers are willing to pay more money when you set a precise, rather than rounded off, price point. This strategy is effective when you’re dealing with large numbers in particular.
As psychology and marketing guru Nick Kolenda summarizes: “Precise numbers trigger an association with small values—thus influencing people’s perception.”
Aldridge recommends employing the tactic of exactitude in your counter offers in particular.
“When we go to counter, we make it so specific that it seems like the seller has to have that number in order to sell,” says Aldridge.
“We want it to seem like that number is thought out. Whereas if we came back at a rounded number, they just know that we’re throwing something out there.”
An example would be countering at $348,932, rather than a more rounded number like $345,000.
3. Price competitively to get people through the door, then talk to buyers like it’s already their house
The amount of money a potential buyer is willing to pay can increase when they enter the right property, says Aldridge, even if logically their budget is the same.
“There are leading questions we like to ask,” Aldridge says. “One of my favorites is, ‘Where do you see your furniture? Where would you put your TV? Your sofa?’
“That helps them visualize the thought that they could have it, which makes them want to go through with the purchase more,” he says.
If the guest stays in the space for an hour, “you know they are most likely going to be putting in an offer on that property,” Aldridge says.
4. Lucky number 8
In Chinese culture, “8” sounds similar to the pronunciation for “wealth,” so it can be a powerful (“lucky”) number to include in your real estate listing.
It sounds crazy, but in 2016, a Chinese developer bought an office building in Sydney, Australia for an interesting price: $88,888,888—and real estate insiders weren’t surprised!
Pricing real estate: part science, part psychology?
Ultimately your real estate pricing strategy should be grounded in reality and your agent’s thorough comparative market analysis, which is worth its weight in gold.
What’s more, selling a house isn’t like marketing a retail display at Macy’s where you’re just experimenting with customer responses.
But there is a certain psychology involved in any kind of pricing. Just remember that buyers will have their own Jedi mind tricks they’ll use to bring your price down!
Header Image Source: (Christin Hume/ Unsplash)