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Does .99 pricing work in real estate?
Researchers interviewed 1000 homebuyers in Virginia. This is what they found about the optimal pricing strategy
shaurya jain
January 24, 2024
Intro
You already know about the rampant use of .99 pricing in retail.
Heck, there are even stores named after it.
Study after study has proven that this pricing method increases sales.
But does it increase sales even in the real estate market where we assume people take decisions more rationally due to the huge investment they are about to make.
Lets find out!
Key Takeaway
Surprisingly, this pricing works even in the real estate market but with a caveat. The left most digit has to change as opposed to the rounded price (199,000 vs 200,000).
If you price your listing as 209,999, the rounded price will be 210,000, then the beneficial effect will be negligible.
The left most digit has to change. The change in second or third or any other left most digit doesn’t help much.
Research Findings
Just below pricing strategies (e.g., $199,900 vs. $200,000) lead to higher transaction prices relative to the true home value compared to rounded price strategies.
Just below pricing strategies ending in 900 or 000 are more effective than those ending in 999 or 990.
Although just below pricing helps you get a higher price, properties with rounded prices sell faster. In other words, their Time on market (TOM) is lower.
The net effect of just below pricing outweighs the benefits of round pricing, leading to higher final transaction prices when considering time on the market.
Underlying causes
The reason why Just below pricing works better is because our brains pay more attention to the left most digit compared to the digits that follow that. Its one of the mental heuristic it uses to make decisions quickly.
The reason why listings with round pricing sells faster is because these listings appear in two price tiers on property listing platforms as opposed to one. A listing priced at $200,000 will appear both in the price tier of 100,000 - 200,000 and 200,000 - 300,000.
Since it shows up in more searches, it sells faster!
Putting it into practice
The next time you want to sell a property, make sure you list it in a way where the left most digit is lesser than the round price you want. 299,500 as opposed 300,000.
Also while you buy your next property, keep this mental bias your mind has in mind (pun intended) to make a more rational decision
Also this is further proof that you should price your products and services with just under pricing!
About the study
Researchers interviewed 1000 homebuyers in virginia. A standard between-subjects experimental design was used. The study was published in 2015.