Is there a science or psychology to pricing your client’s property? I believe there is, and that price is a direct function of marketing. A strategic market price will complement your marketing campaign and position your client’s home effectively in the marketplace.
Let’s look at the four ways that psychology can influence the price.
1. The $19.99 syndrome
It amazes me how many agents price with a 999 or 900 at the end. You always see $199,999 or $199,900. Why does 99 percent of the agent population follow the crowd and price the same way?
Well, many agents are not looking at the price as a function of marketing. It has been said the 9s came about in the 1880s convincing the gullible that they were getting a bargain. Many discounters use 99 in their pricing, and it does not fool smart people.
The main reason it can hurt your listing is that most consumers start their search online when looking for a home. If a buyer is looking between $200,000 and $225,000 for a home, and you priced your at $199,999, that consumer might not see the property online.
The best advice is to price at $200,000, as you will capture both sides of the search. Someone looking between $175,000 and $200,000 and someone looking between $200,000 and $225,000 will find the property online.
Also, you should position your client’s home as luxury brands do, not as discounters. For instance, Godiva chocolate prices at $36.00, not $35.99, and Neiman Marcus prices at $625.00, not $624.99. Ferrari and many other luxury brands also use this model for their products. Do they know something or is this just coincidence? Does the consumer perceive this as a higher-quality product? These brands apparently think so.
2. The power of four and seven
Through my hours of research, reading and studying the psychology of price, the concept of the power of four and seven was evident. For example, a price of $247,000 or $244,000 is precisely priced, and appears that the seller has scrutinized cost, which could suggest to the buyer that there is less negotiation room. This assumption benefits the seller.
Another reason is that the price is unique and stands out to the buyer. Think about all the property listings displayed on all the website portals, like products on a shelf at a store. A price, unlike the others, stands out. Because it’s different and more unique, it will attract the buyer’s attention. Examples of this would be Home Depot or Wal-Mart, who use the four and seven frequently on their sale items. They want to differ from their competitors.
There is also something call the “Right Side Digit Effect.” So, a price of $227,000, has the perception of looking like a better discount or value than $229,999.
Some believe that using the four and seven in your pricing is more emotional to consumers. It’s a friendly number that leverages the buyer’s ego and self-image and has a higher perceived quality of what you are selling.
And don’t forget — seven is a lucky number.
3. How you write the price matters
If you take your marketing offline, such as property fliers, ads, signage, etc., the way you write it can also have an effect on how people perceive the price.
The Journal of Consumer Psychology found that when people have to spell it out in their heads, it sounds higher.
Look at these three prices:
- $1,400.00
- $1,400
- $1400
The last price seemed lower to the consumer without the comma
So you the next time you write a price on your flier or in the newspaper: Price at $177000, instead of $177,000.
Conversely, Cornell University did a study and found the following:
- 5.00 (sold more)
- $5.00 (sold less)
- five dollars (sold more)
You see restaurants pricing this way on their menu. How can you apply this in your real estate marketing? Spell it out. Instead of $100,000, write one hundred thousand dollars or 100000 on your offline marketing and track the response you get.
4. Cuckoo for zeros
For discounts, sales or, in this case, home price adjustments, add more zeros to your promotion to show a bigger cut. When you tell other agents or buyers about a price change word it this way: $50,000.00 off instead of $50,000.
So, is there a psychology to pricing homes? You decide. I believe that price is the largest motivator when selling a product such as a home. And any edge you can gain for your seller is crucial in any real estate market. Be unique and consistent in your pricing approaches, and use a little psychology. This tool will separate you from all the other agents in your market.
What tactics have you found successful in pricing? Please share your thoughts in the comments section below.
Robert McTague is the team leader of CNY Agent Team of RealtyUSA in Syracuse, New York, where he simplifies the process of buying and selling, and offers assistance with marketing, coaching and speaking.