You’ve seen it before. A candle at Target priced at $14.99 instead of $15.00. Have you ever stopped to think about how pricing at 1 penny less affects the way consumers view the product? According to Burc Tanir, Co-Founder and CEO of a competitor price tracking software known as Prisync, using pricing to influence people’s buying decisions is known as psychological pricing.
Tanir argues that using the “Power of 9” or the “left-digit effect” is most common when selling a product to consumers looking for a discount. He suggests that a consumer sees $14.99 and they really think the candle costs closer to $14.00 rather than $15.00. This makes the consumer feel that they are getting a discount and thus increases their likelihood of a purchase.
So, does this same logic apply to pricing a home? Do you think a home priced at $299,999 rather than $300,000 would stand out in a buyer’s mind and help it sell more quickly and for more money? Let’s consider both sides and then see what the data says.
000 Ending Versus Non-000 Ending: Which is Best?
The “000” Argument: Price Increments for Searching
Ever paid attention to the price increments for Zillow, Trulia, Realtor, or any of the other home-related search sites? Their price increments vary, but they all have one thing in common: they all end in “000.” Think about it: when searching for a home, most buyers will use a general range of possible price points they could afford. For example, they may search from $175,000 to $200,000. Most likely, consumers would not use a very specific range such as $175,254 to $199,986. So, if your REALTOR® lists your home at $174,999, your home will be missed by buyers who are searching for their dream home in the $175,000 to $200,000 range. Your home could not show up on a REALTOR®’s search for their clients because of a $1.00 difference.
The Non-“000” Argument: Psychology of Negotiations
I finished a book a few weeks back that was written by Chris Voss, a former FBI hostage negotiator, called “Never Split the Difference: Negotiating As If Your Life Depended On It”. When it comes to negotiations, Voss suggest that “000” endings “…inevitably feel like placeholders, guesstimates that you can easily be negotiated off of” (p. 133). A very specific price, on the other hand, is shown to have buyers think that you arrived at a carefully thought-out number and there is not a lot of wiggle room. So perhaps if you list your home with a “000” ending, buyers see more opportunity to negotiate compared to a non-“000” ending. With non-“000” endings, you may be more likely to make more on your home sale because people don’t feel as willing to make a lower offer. The “Power of 9” argument also comes into play in favor of a non-“000” ending. A listing price of $199,999 may look more appealing than a $200,000 list price although only $1.00 cheaper.
So, which one are you in favor of? Both are valid arguments for pricing, so let’s look at the data for homes listed with a non-“000” ending versus homes listed with a “000” ending.
The Data
In order to help us answer the question of which method of pricing reigns supreme, I analyzed all single-family homes that sold between $185,000 and $305,000 in the Greater Greenville Multiple Listing Service in 2018. It is important to note that I excluded new construction homes as these homes tend to have longer days on market than average. As a baseline, all single-family homes in this price range sold for an average of $234,975 with an average of 36 days on market (DOM) in 2018. Furthermore, the sales price to listing price ratio (SP: LP) of these homes averaged at 98.19%. This means that on average, all of the single-family resale homes priced between $185k and $305k sold for 98.19% of their listing price. For example, if your home was priced at $250,000, then on average, you could expect to get $245,475 in 2018.
Let’s compare the average days on market for various price brackets with “000” endings and non-“000” endings to see if we can discover a pattern. In addition, let’s see which sold for more money: the non-“000” endings that are more appealing psychologically or the “000” endings that show up more frequently in search results.
Average DOM and SP: LP for GGAR MLS Resale Homes Sold Between $185k and $305k in 2018
|
Average Days on Market |
Sold Price : Listing Price |
|||
| Ends in “000” | Non-“000” Ending | Ends in “000” |
Non-“000” Ending |
|
|
$185,000 – $205,000 |
26.44* | 33.63* | 98.56%* | 98.36%* |
|
$205,001 – $225,000 |
32.80* | 32.18* | 98.64%* |
98.42%* |
| $225,001 – $245,000 | 36.42 | 40.54 | 98.15% |
98.22%* |
|
$245,001 – $265,000 |
38.17 | 38.84 | 97.81% |
98.08% |
|
$265,001 – $285,000 |
35.70* | 47.71 |
97.43% |
97.87% |
| $285,001 – $305,000 | 42.81 | 45.08 | 97.57% |
98.03% |
*Beat the average for all re-sale homes sold between $185,000 and $305,000 in GGAR’s MLS for 2018.
Bold indicates the most desirable outcome, lower DOM and higher SP/LP.
Conclusion
On average, it appears that listings ending in “000” tend to sell more quickly than those that have non-“000” endings. While the “Power of 9” or “left-digit effect” did not result in the non-“000” selling more quickly, it did on average show an ever so slightly higher sold price versus listing price ratio compared to its “000” counterpart. In other words, a non-“000” listing may take slightly longer to sell, but it may make you a little bit more money in certain price points.
Additional Considerations
Of course, there are multiple factors when determining a listing price of a home, so it is not as simple as choosing to list at $259,900 versus $260,000. When determining how to price your home for maximum return, it is important to consider your motivation for selling and your family’s overall goals. If you are wanting to sell your home as quickly as possible, it may make sense for you to end your listing price with a “000” ending. If you are in no rush to sell, on the other hand, you may consider pricing your home with a non-“000” ending in order to make slightly more on your sale.
Once you decide to sell your home, the first step needs to be to call your REALTOR® and tell them you’d like for them to come over and provide you with a Competitive Market Analysis (CMA) / home estimate. Your REALTOR® will analyze comparable properties that have sold within your neighborhood recently and look at various factors such as square footage, age of the home, size of the lot, upgrades, and more.
Other factors that affect your listing price:
- What is your competition listing for/how many active homes are in your neighborhood? People do comparison shop while online.
- What kind of shape is your home in? Does it need some work/paint or is it show ready?
- Have you done any upgrades since your purchase?
- Are there any potential turn-offs to buyers? For example, loud road noise, steep driveways, terrible lot placement, etc.
If you are considering selling your home within the next couple of years, please feel free to reach out to me directly for a free home estimate. I am happy to come over to your home months, even years, before you decide to sell to provide you with my professional opinion about upgrades that have the greatest return on investment (ROI) and what you can do to make the most of your home sale! Questions? Let’s connect!
