The Cost of Pricing: How Technology, Psychology and Timing Impact Listing Value

by Peter Thomas Ricci and Megan Oster

Paging Dr. Freud

Along with technology and market fundamentals, the psychological components of pricing have also evolved in the post-boom housing market.

Granted, many classic pricing fundamentals – avoiding obscure prices that consumers are unlikely to search for, such as $305,000; increasing/decreasing a listing price in $25,000 increments; and pricing just below a large number to create the impression of a more competitive price – remain consistent in today’s market, but low inventory has ushered in the new strategy of listing below market price.

That’s a strategy Moy has used to great success in Chicagoland’s southwest suburbs. For properties that have been on the market for three to six months, Moy has priced them at least $10,000 to $15,000 lower than the fair market price, which has not only generated considerable interest from buyers, but also led to 75 percent of her current listings being under contract.

Moy describes a specific example of that strategy: “One client told me they needed a contract in a week, so we priced it $30,000 below, and they ended up with multiple offers within the first three days and an offer $10,000 above the asking price. And the price was close to what everyone was asking for comparable properties anyway. Had she priced higher, people probably wouldn’t be as excited to offer. When it’s lower, and they hear biggest and best offer, it motivates them to act.”

Christopher explains that although a low-price strategy is not always appropriate (it can be problematic with short sales, when the low price is below the lender’s expectations), it’s ultimately what agents should expect in a low-inventory market.

“People are going to pay what they’re going to pay,” Christopher says. “I don’t think it’s shady; you price a property to generate interest. So if that means you price it at an attractive enough price to expose it to the greater market and get more buyers to bid on it, it’s part of your job.”

That said, not all agents are fond of the low-price strategy, and even Christopher admits that it’s no fun being on the buyer side of such bidding wars. Emery, in fact, has found that most of his clients walk away from such competition.

“They don’t want to be a part of it,” Emery says. “They want to do a traditional deal in a traditional way. Otherwise, they worry that maybe they’re overpaying for it. I understand the tactic, but I don’t think it’s good for either side. The seller might lose out, because if it’s listed lower, people will put in a lower bid. And then the highest/best bid may be lower than the listed price or what the listed price should’ve been.”

Read More Related to This Post

Join the conversation

[gravityform id="3" title="true" description="false" ajax="true"]