Is There Any Psychology Involved in Pricing Real Estate?
- Published on
- 6 min read
-
Lena J. Weiner Contributing AuthorClose
Lena J. Weiner Contributing AuthorLena J. Weiner is a writer with over 10 years of experience in research and editing for digital content. She earned a B.A. in International Studies from the Ohio State University and currently resides in a small town north of Boston.
The psychology of pricing, the idea that different prices influence our perceptions and actions, isn’t just a woo-woo concept peddled by marketing enthusiasts. Researchers have actually studied how pricing impacts consumer behavior extensively. Pricing real estate, however, is its own beast to tame.
You aren’t selling a cup of coffee for a buck and a half — rather, there are hundreds of thousands of dollars on the line. When you set an asking price, your North Star is to determine the fair market value with the help of your real estate agent’s analysis of comparable sales. Shoot too high, and you could risk sitting stagnant on the market.
Price Accurately With a Top Agent
Setting the price correctly for your home sale is one of the most difficult tasks in the selling process and is something experienced agents excel at. What’s more, HomeLight data shows that top agents can help sell your house faster and for more money than an average agent.
But there are a few real estate pricing strategies we vetted with top agents and through valid research (and even listing data) that fall more into the territory of psychology. While gimmicks won’t do you any favors, some subtle tweaks to your price may help you convey the right message.
It can be as simple as whether the number you choose is highly specific vs. perfectly rounded, ends in “99,” or seems (magically) soft-lobbed right into a buyer’s search filters.
1. Use ‘charm pricing’ with a twist
When cruising the aisles at the grocery store, ever noticed how many prices end in the 99s? That’s no accident. This strategy is called charm pricing and relies on the truism that $5.99 sounds less expensive than $6.00, even though the difference is only one penny.
But does this theory translate to real estate? According to this study, it’s effective in cold markets, where there’s low demand for properties, and in low-end price segments. It’s wise to round your list price down to the nearest $9,000. So if you were to determine your fair market value was $250,000, you’d want to go for $249,000.
There are a couple of reasons for this. The first is thought to be the psychological effect of charm pricing. Simply put, 99s are cheap. Buyers tend to perceive prices ending in 9s as significantly lower than the next rounded number. Even though the difference is just $1,000, $249,000 feels cheaper than $250,000, making the price more attractive.
Secondly, since buyers often cap their budget at a rounded number like $250,000, your house might show up in more online searches if you price right below it. That said, you don’t have to go crazy with the 9s (like $259,999).
Anecdotally speaking, top-selling Atlanta real estate agent Trent Aldridge supports this strategy: “I think one of our biggest hurdles would [be] $450,000. Listings priced under $450,000 seem to sell a lot quicker than listings over $450,000,” he said.
Just a heads-up: Avoid this tactic if you’re pricing a high-end property. The study cited above showed that charm pricing can work against the seller in high-end home price segments. In this case, using a round number is the better strategy.
2. Nail the price with precision
According to this study, precise asking prices, as opposed to round ones, tend to result in counteroffers and final agreements that are nearer to the original asking price.
This works well in a buyer’s market where buyers often come in with offers lower than the asking price. But in a seller’s market, where buyers might offer more than the asking price, setting round prices can help sellers get higher counteroffers and better deals.
Shifting the focus to buyers, Aldridge recommends using the precision strategy for counter offers.
“When we go to counter, we make it so specific that it seems like the seller has to have that number in order to sell,” says Aldridge.
An example would be countering at $348,932, rather than a more rounded number like $345,000.
“We want it to seem like that number is thought out. Whereas if we came back at a rounded number, they just know that we’re throwing something out there.”
3. Entice interested buyers to “inflate” the price
The amount of money a potential buyer is willing to pay can increase when they enter the right property, says Aldridge, even if logically their budget is the same.
“There are leading questions we like to ask,” Aldridge says. “One of my favorites is, ‘Where do you see your furniture? Where would you put your TV? Your sofa?’
“That helps them visualize the thought that they could have it, which makes them want to go through with the purchase more,” he says.
If the guest stays in the space for an hour, “you know they are most likely going to be putting in an offer on that property,” Aldridge says.
4. Tap into the magic of number 8
In Chinese culture, “8” sounds similar to the pronunciation for “wealth,” so it can be a powerful (“lucky”) number to include in your real estate listing.
It sounds crazy, but in 2016, a Chinese developer bought an office building in Sydney, Australia for an interesting price: $88,888,888 — and real estate insiders weren’t surprised.
5. Apply price anchoring
Price anchoring in real estate is all about setting a psychological benchmark to influence how buyers perceive value. Sellers can start with a higher asking price to create a reference point, making any price reductions seem like a great deal. This strategy taps into the buyer’s mindset, where a price drop feels like a bargain.
Alternatively, pricing below market can spark excitement and urgency, enticing buyers to jump in before someone else does. Even if the price increases amid the competitive bidding war, the initial lower price point feels like a win. For example, a home listed at $500,000 might drop to $475,000, making buyers feel like they’re getting a steal, even if the final sale price is higher.
This strategy works especially well in competitive markets where multiple buyers are vying for the same property. By anchoring expectations early, sellers can generate more interest and potentially higher offers.
Just a heads-up: While price anchoring can be effective in creating a psychological benchmark, asking for a higher price upfront can risk turning off potential buyers if it feels too high. A skilled agent knows how to use comps to set a price that attracts interest while strategically positioning the home for bidding or future price reductions.
Pricing real estate: part science, part psychology?
Ultimately your real estate pricing strategy should be grounded in reality and your agent’s thorough comparative market analysis, which is worth its weight in gold.
What’s more, selling a house isn’t like marketing a retail display at Macy’s where you’re just experimenting with customer responses.
But there’s definitely psychology involved in pricing, and buyers will use their own strategies to try to lower your price, so always be ready for negotiations. A real estate agent can guide you through these discussions. Use our Agent Matching tool to connect with a top-performing agent who can help you achieve your selling goals.
Header Image Source: (Christin Hume/ Unsplash)
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
