Full Value by Jack Richards

Author:Jack Richards
Language: eng
Format: epub
ISBN: 9781626346857
Publisher: Greenleaf Book Group Press
Published: 2020-04-14T16:00:00+00:00

The perceptions of buyers and sellers, though, may not completely reflect what is actually happening. According to research by a team of academics from Cornell University and Indiana University, there are mechanisms at work when evaluating a low price.6 One is a low-price signal, meaning the precise price would indicate the seller is cost-conscious and has deliberately lowered the price as much as they can to get to the precise price listed. The second is the expected negotiability mechanism, which I described earlier; this mechanism assumes that the precise price signals to the buyer that the seller would be difficult to negotiate with. A third mechanism is what these researchers refer to as the learned precision-magnitude association hypothesis. This hypothesis indicates that humans generally think in small numbers and use rounding as a mechanism for thinking in larger numbers. This mental shortcut is one reason why humans believe the difference between 1 and 2 is larger than the difference between 99 and 100, despite the difference being exactly the same. The learned precision-magnitude association would cause the appearance of a price such as $424,855 to seem much lower than a home priced nearly the same at $425,000 despite the nominal difference of only $145.

In their analysis of 27,000 home sales, the researchers found a link between more-precise list pricing and higher total sales price. In one sample looking at house prices in Florida, the calculations showed that more-precise home prices, whose last digits were rounded to three zeros (e.g., $425,000) had selling prices 0.72 percent lower than homes with list prices ending with two zeros (e.g., $424,700). The effect continued to homes with list prices ending with four zeros (e.g., $450,000). The additional zero in the price correlated with a selling price relatively lower than homes priced with three zeros or two zeros. Using this approach, despite the small percentage impact, could be worth several hundred or even several thousand dollars to the seller. The relationship between more-precise list pricing and higher sales price held up across the other region studied and accounting for other potential variables. This study is another vote for using precise pricing. While the study results did not indicate a clear winning strategy, the precise strategy and the just below strategy both appear to result in homeowners selling their homes for higher prices than the round number strategy does.

The science of determining optimal listing price strategies is not settled, and there are counterarguments to the absolute best strategy. As one example countering the suboptimal value of a round number strategy, some experts recommend setting a price at a website search bracket breakpoint, such as $200,000, with the thought being that your home would show up in a search of homes with the lowest price of $200,000 and another set of searches with $200,000 at the highest end. A price of $199,000, for example, would not show up in a search for homes between $200,000 and $250,000. Because buying patterns are shifting more to online searches, shopping

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