Could You be Charmed?

“Charm Price” Psychology in Residential Real Estate

What does a list price of $1,299,950 say to a potential buyer?

Americans are famous for their tendency to attach a $99.99 price tag to a product, rather than $100.00. This retail strategy—reducing an item’s price by a few dollars or cents to make an item seem less expensive—is known as “charm pricing.” The idea is that an item priced at $895 may appear to be more a bargain to consumers than one priced at $900.

The Real Estate Center at Texas A&M University reported the results of a recent study of this pricing strategy, as used in real estate, in the January 2007 issue of Tierra Grande magazine. For instance, what are the results of listing a home at $1,299,950 rather than $1,300,000?

The research was conducted by Marcus Allen, of Florida Atlantic University, and William Dare, of Oklahoma State University. Using a large sample of home sales in the Fort Lauderdale metro area, they discovered that when charm pricing was used, homes tended to sell closer to the listed price than did homes offered at a rounded price.

The two concluded that a seller who uses charm pricing is communicating that the listing price is close to the lowest amount he or she will accept. The seller appears to indicate that the price is fixed and that there’s little room for bargaining.

“On the other hand, sellers who list homes with a rounded price seem to be indicating there is room for bargaining,” says Jack Harris, Ph.D., who monitors national real estate research for the Real Estate Center at Texas A&M.

It appears that the psychology of charm pricing, used by retailers for decades, may also work with high priced items like homes.

(article by Laurie Moore-Moore, founder of the Institute of Luxury Home Marketing)

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