The higher a home is priced at the outset, the more likely it is that it will get a higher offer from a buyer, according to a new study by researchers Grace Bucchianeri and Julia Minson. The study appeared in the May issue of the Journal of Economic Behavior & Organization. The researchers factored in geographical location and timing of sales in evaluating the pricing strategy of 14,000 real estate transactions.
“A home that is listed 10 to 20 percent higher than other homes in the neighborhood will command an additional increase of 0.05 percent to 0.07 percent in the sale price for each 10 percent increase in the expected price,” the study notes.
A popular pricing strategy popular among some real estate professionals is to underprice a home in order to ignite a bidding war. However, the researchers say that this isn’t effective because there are seldom enough buyers in a market to create a “herding effect” to increase prices. They found that under-pricing a home could actually lead to a lower sales price.
“Pricing a home 10 percent to 20 percent lower than comparable homes led to a 0.05 percent to 0.08 percent decrease in the expected price,” the study notes.
The researchers suggest that first impressions on price have a strong influence on buyers. A buyer may consider a range of prices when house hunting, but they always refer back to the original list price when making a decision.
Critics point out that the study’s findings aren’t completely conclusive in determining the best pricing strategy. The researchers evaluated transactions that had an average sales price of $234,000. Given the price variations found in the study, the amounts in final sales prices only ranged from $117 to $187, critics say.