THE PSYCHOLOGY BEHIND REAL ESTATE PRICING
Have you ever wondered why some homes’ list price is an unusual number? Or why the price is listed as $100 less than a whole number, like $549,900 rather than $550,000? It’s simple, it comes down to the subconscious psychological trends that can impact how a potential buyer views your home. Your Realtor knows that using real estate pricing psychology in the list price can potentially bring more interest and ultimately buyers. Here’s why.
A Good Deal
With prices all around us going up, who isn’t looking for a bargain or good deal these days? The same is true in real estate. There is a concept called the “Left Digit Effect” that can trick your brain into thinking one price, that is pretty much the same amount as another price is a better “deal”. For example, let’s take a common item at the grocery store, eggs. If you think about it have you ever seen a carton of eggs for sale at $5.00? More likely you will see the price, $4.99 or $4.79. This is quite common in most grocery store items as well. The $4.99 convinces your brain that it’s a better deal than if it was priced at $5.00. The same goes for pricing a home.
After researching recent comparable sales, you and your real estate professional decide on a list price. You would like to price at $400,000, but your Realtor recommends $399,900. It’s only $100, but all those nines change how potential buyers view your list price. It can assist buyers in thinking they are getting a deal and they will be more likely to want to visit your home. As we read from left to right, the brain places more value on the left digit because it was read first.
It’s only a $100 difference, but all those nines change how buyers view the price.
With that said, people aren’t that naïve and most people know that there is no real significant difference between the two prices mentioned above, yet psychology plays out in your favor and can help you build more interest in your property.
You may have heard your Realtor talk about a buyer’s price range when selling your home. Buyers typically look for even numbers that fall within their set range. For example, a buyer wants to purchase a home for around $500,000, but they will look at homes between the range of $475,000 and $525,000. Why $525,000 and not $519,000? That’s because naturally, our brains prefer whole, even numbers in consecutive order. Such as 100s, 200s, 300s, etc. The same goes for $25, $50, $75, etc. However, your real estate professional may want to get your home noticed and may try to break this pattern.
So instead of listing your home at $500,000, they may suggest a listing for $497,000. This is a less common number to see on a list price and your brain knows it. The unusual number may make your home’s price stand out more to a buyer than an even number.
An odd number such as $497,000 in a competitive market may make a home’s price stand out to a buyer.
Another factor that makes your home price memorable is that the brain has to work harder mentally to process that price. Simple math such as finding the number in the middle of a budget range such as $475,000 to $525,000 is easy when it’s an even number, like $500,000, but $497,000 can be a brain scratcher and our brain has to think harder, or in some cases pull out a calculator.
The goal is to stand out, but not in a negative way. Too unusual of a price such as $497,235 could raise red flags to potential buyers and they may wonder if something is off with the seller and avoid the property.
After your Realtor presents your home’s value range, based on how comparable homes have been selling, market trends, and time of year they may suggest listing on the low end of the value range. That may seem counterintuitive since as the seller you are hoping to get the higher price in that range. However, by pricing your home on the lower end of the range, you can potentially attract more interest in your property and possibly more than one buyer.
Buyer psychology or behavior shows that buyers typically don’t want to be the only ones interested in a house. When a buyer knows other potential buyers are interested in the same house this makes the home more appealing and buyers are often willing to pay higher when this occurs.
More than one buyer interested in the same house eases a buyers mind and can drive them to offer a higher price.
Everyone’s Best Interest
It’s important to keep in mind that your Realtor’s goal is to get you the most money for your home and keep the process as smooth as possible. Even with all the psychological tricks mentioned your Agent will ultimately price the home in a way that will accomplish their goal of selling your home for the maximum price. In some cases, a unique number, or a few “9s” may not make a difference. If your house is the best home compared to others that have recently sold or that are for sale they may opt to list your home on the higher end of the value range.
It all starts with a Realtor evaluating a home and agreeing to a price with the seller. Then, based on market trends, they might set a listing price that engages potential buyers. This number may change as the list date approaches, but generally, it will be within the range you and your Realtor have agreed on.
If the seller is looking to sell the house quickly, they will likely agree to a lower listing price. If a Realtor thinks they can get above-listing bids, they might also push the seller for a unique number. This is all part of real estate pricing psychology. Each property has its own psychology based on the neighborhood, trends, and time of year.
Hire the Right Realtor
The real estate professional you choose should be an expert in their field, your area, and market, but having a proven record of psychology pricing up their sleeve is also important. Realtors in general aren’t psychologists, but they are in the business of understanding buying behavior. Having years of experience working with both buyers and sellers your Realtor can guide you on the best way to price your home based on knowing what affects each party’s behavior in a real estate transaction.
Considering buying or selling a home in the Boise Metro Area? Set up a free consultation to learn the most effective way to buy or sell real estate in today’s market with real estate expert, Jennifer Louis. (208) 509-9122 or firstname.lastname@example.org