?Just Under? Pricing
For years real estate agents have recommended pricing homes using a technique called ?just under? or ?9-ending? pricing. Thus, up until recently, almost all homes were priced ?just under? what the seller was really thinking the home was worth (e.g., a million dollar home was priced at $999,999). It was a ubiquitous tactic even though most agents, when asked, weren?t really sure why they did it?after all, you see that kind of pricing everywhere from supermarkets to car dealerships. Surely, those folks know something profound about pricing strategies and buyer tendencies. But, over the past couple of years, lots of agents have begun recommending that sellers price their homes ?on the number? (e.g., price it at $1,000,000, not $999,999).
There are a couple of good reasons to do this. One, ?9-ending? pricing feels a bit underhanded and does not necessarily seem like it would work. Buyers are rational actors that objectively compare price and other factors when making a home buying decision. Two, internet search tools permit consumers to search the MLS at will. But, the search parameters are often limited in $50,000 or $100,000 increments. Thus, if a seller priced her home at $999,999, someone searching for homes from $1 million and up would not see her home.
As a result, many agents (me included) began recommending to sellers that they price their home ?on the number? especially if that number was divisible by $50,000. Simple enough. A recent study has shown, however, that the decision to price ?on the number? is not so simple after all. Indeed, there is something to the ?just under? pricing strategy. The study found that sales were significantly higher when the strategy was used and that buyers were not as rational as we would think. The study pointed to a couple of psychological cues and phenomenon. But, boiled down, it seems people get a little emotional kick by ?just under? pricing. Indeed, each home’s sales price must be specifically designed to draw the most attention to that home. No universal rule can be applied and all the variables must be assessed in the light of good judgment.