February 19, 2008 in Business

Precise pricing moves houses

Washington Post The Spokesman-Review
 

WASHINGTON – 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 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, 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 homebuyers specifically tend to thinki 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 $484,700, “the house with the more precise list price will sell for about $1,380 more.” The Cornell study, published in September, got some buzz when its findings appeared in the January-February issue of the Atlantic. But 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


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