The Psychology of Real Estate Pricing
Posted: Wednesday, October 21, 2009
by Joe Cline
Affinity Properties, Inc
In 1987, the Journal of Real Estate Research published an article entitled "Pricing Strategies and Residential Property Selling Prices," which presented evidence showing that the pricing strategies used for residential properties actually colored the perceptions of buyers regarding the quality and the worth of the property in question. This effect, called price influence, is based on the idea that consumers often base their assumptions about quality and worth on the listed price of an object. For instance, consumers exhibit a trait consumer researchers call "price reliance." This is the tendency to believe that things that cost more are worth more, and that the reverse is true as well. Even for informed buyers, price is an indicator of quality. The article cited evidence that this is especially true for less frequent purchases and high-value items, like automobiles and real estate, and stated that within certain "latitudes of acceptance" price increases correlated with consumer perceptions of higher quality. This was partially attributed to a dearth of applicable knowledge on the part of buyers, who often lack specific knowledge of home values and comparable pricing for similar homes. Due to their lack of knowledge, price becomes an important indicator of worth for both parties.
A more recent article from the New York Times called "The Psychology of Pricing" argues that there are specific pricing break points. For lower-priced homes, these break points come every $20,000 or so, and at each $50,000 or $100,000 for higher-priced properties. If your home is priced just under or just over one of these break points, it can have serious effects on your ability to sell your home quickly and for the amount you want. For instance, the article postulates that it's better to price your home at $299,000 than $301,000, because $301,000 seems much higher than $299,000 from a psychological standpoint. Additionally, pricing your house just under one of the break points ($99,000 rather than $100,000, for example) will likely attract more potential buyers, since nearly every real estate buyer has a specific price they are not willing to exceed, and they usually inform their real estate agents of this maximum price. The difference between specific numbers and rounded off numbers is significant as well, since the latter seem to give the impression that the price is negotiable far more than an oddly precise amount might do.
Generally speaking, the more attention and foot traffic your home receives, the faster it will sell and the more likely it is that you'll receive close to your asking price for it. It is obviously better to be in the position of choosing between a number of bids on your home than to have received none at all. Therefore, it's important to carefully assess the true worth of your home, then price it slightly above that, but just under one of the pricing break points. If your estimate of your home's value is correct, then you should be able to benefit from your knowledge of price reliance and the financial break points to sell your home quickly and for the best possible price.
About the Author:
Joe Cline writes articles for Austin real estate. Other articles written by the author related to Round Rock real estate and Austin real estate blog can be found on the net.
This Article has been viewed 26 times. (Not updated in real-time.)
No comments yet.We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.