Maybe Not a 000-Sum Game

By Sandra Fleishman
Special to The Washington Post
Saturday, February 16, 2008

Got a house to sell but worry about standing out from the competition?

Consider this: A research team at Cornell University has found that people will pay more for a house if its listing price does not end in a bunch of zeros.

In other words, the researchers say, you might make more money if you price your house at $325,425 rather than $326,000.

"It's a psychological bias," said Manoj Thomas, an assistant professor of marketing at Cornell's Samuel Curtis Johnson Graduate School of Management. "A bias in judgment."

The study concluded that because people are used to precise numbers for items that don't cost much and to round numbers for large amounts, consumers generally and home buyers specifically tend to perceive that a price is smaller if there are digits at the end instead of zeros.

"It does seem ridiculous," Thomas said. "But when you see a price, your response is not always based on deliberative reasoning."

Thomas said the results were confirmed in lab tests with 134 graduate students and by examining 27,000 real estate transactions in two markets -- South Florida and Long Island -- where most list prices had three ending zeros. (The researchers didn't consider prices ending in nine because of a separate consumer bias regarding those numbers.) In South Florida, having at least one zero at the end of the list price lowered the final sale price by about 0.72 percent compared with houses listed at a similar price; having three zeros lowered it by 0.73 percent. In Long Island, the impact was smaller.

What's that mean in terms of cash? According to the authors, if there is one house with a list price of $485,000 and another with a list price of $484,700, "Our results suggest that the house with the more precise list price will sell for about $1,380 more" than the house with the three zeros at the end.

The Cornell study, published in September, got some buzz when its findings appeared in the January-February issue of the Atlantic. But the online brokerage Redfin looked at 30,000 home sales in Seattle last March and found that homes with an asking price ending in $500, such as $391,500, "had the highest sales-price-to-asking-price ratio."

The company's Web site touted the Cornell research and now urges home sellers to price homes at the $500 mark. "This consistently is our advice now," said Catherine Jardine, Redfin's marketing manager for the Washington-Baltimore region.

Redfin also urges clients to price "just under the major price points" used by Web sites to get the most viewers. Many real estate Web sites list homes in ranges, divided by $25,000, $50,000 and $100,000 limits, Jardine said, "so you want to come in just under those, and end in $500."

Paul Bishop, senior economist for the National Association of Realtors, said he isn't familiar with the price studies or a connection between precise list prices and higher sales prices. But he's not knocking the ideas, either. "It sounds like they're tapping into some kind of behavioral pattern," Bishop said. "Maybe that kind of pricing grabs people's attention to begin with."

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