The psychology of pricing a real estate property

I’ve used this philosophy for about 6 years. Some agents don’t believe in this and yet many of my Ad Agency sphere follow this almost religiously.

Brokers and Realtors that follow my blogs may recognize this philosophy and will find that Robert McTague provides some observations helpful to homeowners considering selling as well as Realtors. Is there a science or psychology to pricing your client’s property? Robert believes there is, and that price is a direct function of marketing. A strategic market price will complement your marketing campaign and position your home effectively in the marketplace.

Let’s look at the four ways that psychology can influence the price. I’ve shared this with my sellers, and at times my sellers will share before we settle on a listing price. 

1. The $19.99 syndrome

Roberts observation notes many agents price with a 999 or 900 at the end. You always see $199,999 or $199,900. Why does 99 percent of the agent population follow the crowd and price the same way?

Well, many agents are not looking at the price as a function of marketing. It has been said the 9s came about in the 1880s convincing the gullible that they were getting a bargain. Many discounters use 99 in their pricing, and it does not fool smart people.

Robert introduced this philosophy to sellers when marketing their home.  The main reason it can hurt your listing is that most consumers start their search online when looking for a home. If a buyer is looking between $200,000 and $225,000 for a home, and you priced yours at $199,999, that consumer might not see the property online.

YES, the internet brings transparency to today’s marketing and provides data that recognizes the fair market value to buyers and sellers. 

The best advice is to price at $200,000, as you will capture both sides of the search. Someone looking between $175,000 and $200,000 and someone looking between $200,000 and $225,000 will find the property online.

2. The power of four and seven

Through Roberts hours of research, reading and studying the psychology of price, the concept of the power of four and seven was evident. For example, a price of $247,000 or $244,000 is precisely priced and appears that the seller has scrutinized cost, which could suggest to the buyer that there is less negotiation room. This assumption benefits the seller.

Another reason is that the price is unique and stands out to the buyer. Think about all the property listings displayed on all the website portals, like products on a shelf at a store. A price, unlike the others, stands out. Because it’s different and more unique, it will attract the buyer’s attention. Examples of this would be Home Depot or Wal-Mart, who use the four and seven frequently on their sale items. They want to differ from their competitors.

There is also something called the “Right Side Digit Effect.” So, a price of $227,000, has the perception of looking like a better discount or value than $229,999.

Some believe that using the four and seven in your pricing is more emotional to consumers. It’s a friendly number that leverages the buyer’s ego and self-image and has a higher perceived quality of what you are selling.  “And don’t forget — seven is a lucky number.”

3. How you write the price matters

If we take your marketing offline, such as property fliers, ads, signage, etc., the way you write it can also have an effect on how people perceive the price.

The Journal of Consumer Psychology found that when people have to spell it out in their heads, it sounds higher.

Look at these three prices:

  • $1,400.00
  • $1,400
  • $1400

The last price seemed lower to the consumer without the comma, now how our Multiple Listing Service defines this may need an interpretation. 

Conversely, Cornell University did a study and found the following:

  • 5.00  (sold more)
  • $5.00 (sold less)
  • five dollars (sold more)

You see restaurants pricing this way on their menu. How can we apply this in our marketing? Spell it out. Instead of $100,000, write one hundred thousand dollars or 100000 on your offline marketing and track the response you get.  

4. Cuckoo for zeros

For discounts, sales or, in this case, home price adjustments, perhaps add more zeros to your promotion to show a bigger cut. 

So, is there a psychology to pricing homes? You decide. Robert McTague believes that price is the largest motivator when selling a product such as a home. I try to be unique and consistent in my pricing approach and use a little psychology. 

Author: danswingblog

Dan has celebrated over 19 years as a full-time Realtor. Successfully listed and sold Luxury homes, diversified real estate portfolios. Advises and assists clients with challenging liquidations and purchases. Not uncommon to be working with foreign nationals, buyers that leverage the Sterling, Euro, and similar currency. Dan welcomes the Global community, with friends in many Nations. He brings a reputation for Integrity, Expertise, and Focus. Our customers deserve the best. Currently provides Residential and Commercial B.P.O.'s, Broker Price Opinions, B.O.V's, Broker Opinion of Value to many lenders. Manage and Sells R.E.O., Real Estate Owned properties, distressed properties! Evaluate and negotiate solutions for sellers and lenders. Developed, operated and sold a Florida "AWARD WINNING" Ad Agency! 2010 & 11 Commercial Agent of the year. RE/MAX Paramount Properties. Relocated to Tampa in 2012, enjoyed retirement for 6 months. Saw unethical practices by some Realtors and choose to reverberate our profession in the Tampa area. In four years built his business to as many as four (4) transactions monthly. Mortgage brokers were calling Dan a Superstar in Real Estate. Dan and his wife relocated to North East Florida, to the community of Nocatee. Currently focusing on 55 and older communities and Luxury Real Estate. Successfully closed on many extremely challenging foreclosures, and Short Sale. Coached and participated in Commercial and Multi-Income Family REO's in the past six years. Elected to the Auburndale City Commission in 1986-88. Created and served as 1st Redevelopment Chair in 1988 & 89 personally put in place all the elements for the Auburndale CRA. 1990 City Commission refused to give a full vote of confidence. After a 5 year journey to personally raise funding, extensive research and study for the CRA district perimeters, and stunned with the Commissions doubt. Positioned himself to run for office again, was re-elected to Auburndale Commission, to serve 1991-93 to full fill the CRA master plan! Active with the Central Florida Development Council from conception in 1985 and sat on the board periodically for the past 25 years representing municipalities and private investors. The positions Dan held from 1986 through 1993 enabled him to have a complete workable understanding of the State of Florida Comprehensive Plan for Future Land Use, and the benefits of intergovernmental agreements, utility franchise expansions, and public/private partnerships! Specialties: Assets recovery & receivership, Real Estate Portfolio's, REO & Short Sale of Residential and Commercial negotiations, marketing consultant, public relations, and Broker Price Opinions for residential and commercial lenders.

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