BOCA RATON, Fla. – Aug. 10, 2016 – For real estate agents, it’s an age-old question: Is it more effective to list a home for a round number, such as $200,000, or is it more effective to make the first digit smaller and list a home for $199,000?
According to a study done by Florida Atlantic University (FAU), the $199,000 list price tends to be better for a seller. The results were published in the Journal of Housing Research – an official publication of the American Real Estate Society (ARES).
“These findings will help real estate brokers and sellers of homes develop more informed listing and marketing strategies to better suit sellers’ needs,” says Ken Johnson, Ph.D., ARES publication director, real estate economist at Florida Atlantic University’s College of Business and co-developer of the Beracha, Hardin and Johnson Buy vs. Rent Index.
The study looked at 1,000 buyers in Virginia and a pool of more than 370,000 listings. The researchers were able to determine the impact of “rounded pricing” listing strategies versus “just below pricing” listing strategies by looking at the results following a sale.
“Our study suggests that by using the just-below pricing strategy sellers can price their home slightly higher without driving away potential buyers,” says Eli Beracha, Ph.D., of Florida International University, who conducted the study with Michael J. Seiler, Ph.D., of The College of William & Mary.
Part of the key rests on how sellers price the home in the first place. They study found that just-below sellers tend to look at actual value and raise the asking price higher, but only to a point below a round number. Sellers who chose a round number in the first place tend to price their home closer to actual value.
“On average, buyers are more attracted to a house priced at $199,000 than to a house priced at $200,000, and it appears that just-below pricing works out favorably for sellers in terms of their bottom line,” Beracha says. “Based on our research, the just-below pricing strategy yields a selling price that is, on average, roughly 2.5 to 3 percent higher – $5,000 to $6,000 on a $200,000 house – compared with a rounded pricing listing strategy.”
While residential real estate agents widely disagree on the appropriate pricing strategy to use when listing residential real estate for sale, the researchers found that homebuyers more often prefer homes priced using a “just below” pricing strategy. This preference allows sellers to list their home for a higher initial listing price.
On the other hand, rounded priced homes typically spend less time on the market and their selling price is closer to the listing price that just-under priced homes. Overall, however, the just-below pricing strategy outweighs the lower discount and shorter time on the market associated with similar rounded-priced strategy homes, according to FAU.
“We tested the age-old debate concerning the best technique to price a home when listing it for sale,” Seiler said. “We find that using a price just below a round number works best, particularly in connection to the left-most digit in the price. So, $199,000 works better than $200,000.”
© 2016 Florida Realtors®