The Effect of Listing Price Strategy on Transaction Selling Prices
- 881 Downloads
While true underlying home values are expected to be randomly distributed, actual residential listing prices tend to be highly clustered. Particularly, more than 75 % of the homes in our sample are associated with a round or “just below” round asking price. This study provides a theoretical and empirical examination of how the thousands digit in a home’s asking price is related to the final transaction price relative to its true underlying value. Our findings suggest that, on average, homes listed using a “just below” pricing strategy are associated with the greatest discount negotiated relative to the asking price. However, the higher initial degree of list overpricing reflected in “just below” pricing compared with other strategies more than offsets the greater discount. Therefore, “just below” is the most effective pricing strategy for the seller in terms of a greater dollar yield relative to value. These empirical findings have economic significance and are robust across both “buyer” and “seller” housing markets, new versus existing homes, and across multiple home price ranges.
KeywordsList pricing strategies Time on the market Residential real estate
We would like to thank Oded Palmon, Ben Sopranzetti, Paul Anglin, and Tom Springer for comments on earlier drafts of this study. We also wish to thank the Virginia Association of Realtors® (VAR) for access to their sample of homeowners for the experimental component of this study. We specifically acknowledge the special assistance of Stacey Ricks at VAR. We would also like to thank Real Estate Information Network (REIN) in Hampton Roads, Virginia for providing transactions data for the empirical aspect of this study. All errors and omissions remain our own.
- Allen, M., & Dare, W. (2006). Charm pricing as a signal of listing price precision. Journal of Housing Research, 15(2), 113–127.Google Scholar
- Deng, Y., Gabriel, S., Nishimura, K., & Zheng, D. (2013). Optimal pricing strategy in the case of price dispersion: new evidence from Tokyo housing market. Real Estate Economics, 40(5), forthcoming.Google Scholar
- Friedman, L. (1967). In A. Phillips & O. E. Williamson (Eds.), Psychological pricing in the food industry, in prices: Issues in theory, practice, and public policy (pp. 187–201). Philadelphia: University of Pennsylvania Press.Google Scholar
- Gilmour, J. (1985). One cent less doesn’t make sense. Australian Business, March 20, 34.Google Scholar
- Hogl, S. (1988). The effects of simulated price changes on consumers in a retail environment-price thresholds and price policy. Lisbon: Esomar Congress Proceedings.Google Scholar
- Holdershaw, J., Gendall, P., & Garland, R. (1997). The widespread use of odd pricing in the retail sector. Marketing Bulletin, 8(1), 53–58.Google Scholar
- Miller, N., & Sklarz, M. (1987). Pricing strategies and residential property selling prices. Journal of Real Estate Research, 2(1), 31–40.Google Scholar
- Palmon, O., Smith, B., & Sopranzetti, B. (2004). Clustering in real estate prices: determinants and consequences. Journal of Real Estate Research, 26(2), 115–136.Google Scholar
- Rudolph, H. (1954). Pricing for today’s market. Printers Ink, 28, 22–24.Google Scholar
- Seiler, M., Seiler, V., Traub, S., & Harrison, D. (2008). Regret aversion and false reference points in residential real estate. Journal of Real Estate Research, 30(4), 461–474.Google Scholar
- Seiler, M., Madhavan, P., & Liechty, M. (2012). Toward an understanding of real estate homebuyer internet search behavior: an application of ocular tracking technology. Journal of Real Estate Research, 34(2), 211–241.Google Scholar