Important points
Prices ending in “990” or “900” create the illusion of value, while round numbers can indicate prestige. The first price a buyer sees sets the psychology of the property price and becomes the basis for all subsequent negotiations. The pricing strategy should align with the seller’s main goal: achieving the highest possible price or selling the home quickly.
The price you choose is the most important factor when selling your home, but it’s not just a financial decision. Setting the right price is an exercise in human psychology. It’s about how potential buyers perceive value, how they compare your home to other homes, and what emotions the numbers evoke.
Understanding the psychology of real estate pricing can provide significant advantages to sellers, allowing them to generate more interest, generate competitive offers, and achieve successful sales. This Redfin real estate article details the psychology behind pricing and how you can use it to ensure you get the best price when selling your home in Kansas City or Ann Arbor.
What is the psychology behind home prices?
Real estate pricing psychology studies the psychological shortcuts, biases, and emotional responses that influence a buyer’s decision-making process when they see a price. Rather than processing every available data point, buyers rely on simple, subconscious rules to determine whether a price is fair or a good deal. Several powerful psychological influences shape this perception.
anchoring effect
The first price a buyer sees becomes their mental “anchor.” Once a home is listed, the initial price is the basis by which all subsequent prices, including price declines and counter offers, are determined. Setting the anchor too high can lower the price down the road and make it look like a high-priced deal, but setting the anchor too high may deter buyers from even considering the home.
Odd-even pricing effect
Odd-even pricing, often referred to as “charm pricing,” is a strategy that ends the price just below a fractional number (for example, $499,000 instead of $500,000). This takes advantage of the brain’s tendency to process information from left to right. A buyer sees a “4” and realizes that the price is in the $400,000 range, which is much different than the $500,000 range, even though the difference is only $1,000.
Decoy effect
If a seller has three homes for sale, two of which are similarly priced and one a little more expensive, the middle-priced home often appears to be the best value. In this scenario, the third, more expensive house acts as a decoy.
Its sole purpose is to make the target home, which is the home the seller wants to sell, appear more reasonable and attractive by comparison. Comparative market analysis is important for pricing, as homebuyers use other homes in the neighborhood as comparison decoys.
How can you apply real estate pricing psychology to your listings?
Effectively using the principles of real estate pricing psychology requires a clear strategy that aligns with your sales goals.
Align your price to your primary goal If your goal is to sell quickly: Use an aggressive attractive price (e.g. $499,900) to maximize views and potentially trigger a bidding war that drives the price above the asking price. If your goal is to maximize final sales price: Use a price at the high end of the range to establish a high anchor. You can then negotiate lower if you want, but you’re setting high expectations from the beginning. Please select the appropriate price ending. The last three digits of your price can be a powerful tool for communicating your message. $X99,900: This conveys value and creates an odd-even pricing effect, so it’s often best suited for mass market listings. It says, “We offer you the best deal possible.” $X00,000: Round numbers convey luxury, simplicity, or prestige. This is often used in high-end homes where the seller wants to demonstrate a premium product. $X50,000: This is a safe intermediate approach. Avoid the impression of being overpriced, while at the same time avoiding appearing too aggressive or underpriced. Price close to search bracket. Buyers often search for homes in parentheses (for example, $400,000 to $450,000). To maximize visibility: Price just below the cutoff. The $499,900 price will show up in both “up to $500,000” and “up to $400,000” searches (if the buyer uses enough range). Prices at major price points. Recognize the most popular search tiers on the market and price strategically to attract the most buyers.
Sell your home using real estate price psychology
After all, the price you put on a home is a powerful psychological tool. This is your first communication with a potential buyer and will determine how the buyer perceives value throughout the sales process.
By understanding the principles of real estate pricing psychology, you can do more than just list your home. You begin to influence the buyer’s decision-making process, generate stronger interest, and position yourself for the most successful sale possible.
FAQ
Do a $499,000 home really perform differently than a $500,000 home?
Yes, research and market data consistently show that prices ending in “9” are considered significantly cheaper. This small $1,000 difference can result in a significant increase in buyer inquiries and showings.
Can your home costing too much hurt your chances of selling?
absolutely. Prices that are too high often lead to longer periods on the market, fewer showings, and ultimately lower prices. Homes that have been neglected for too long can be psychologically stigmatized, causing buyers to wonder what’s wrong with the home.
Is it better to lower the price to start a bidding war?
In a competitive seller’s market, pricing slightly below market value is a common and effective psychological tactic. The goal is to generate significant interest and multiple offers that combine to drive the final sale price above simple fair market value.
