Is Psychological Pricing For Psychos?

Have you ever wondered why brokers advise sellers to price their properties with a number ending in 95 or 99 – e.g. $695,000? Has it ever struck you as a little silly especially as asking prices climb into the millions of dollars – e.g. $2,999,999?

Psychological pricing is a technique designed to make customers believe they are paying less than they are. It was developed from a more than 100 year old sales trick.

The practice is rampant in real estate today. 1/3 of all properties for sale in Manhattan are listed in accordance with the 95/99 pricing strategy. Unfortunately, this marketing ploy only serves to support the generally poor image the public has of the broker as a self-serving salesperson.

Your credibility as an agent aside, there are other reasons why 95/99 pricing may not work to your advantage:

* Most psychologically engineered prices signal a final price, but in real estate it is perceived as the asking price, so it loses an important aspect of its intended effect.
* It ignites the idea in the buyer’s subconscious mind that not only is a price negotiable, but MORE negotiable.
* It keeps the property listing out of any search which starts with 00 (e.g. the search is $700K to $800K, but the listing is $699,000).
* The only area in which a real estate price tends to be perceived as final is in New Construction where the developer’s odd pricing (e.g. $1,374,540) is based on other considerations. It is noteworthy in this context that developers tend NOT to use 95/99 pricing.
* Real estate buyers generally decide what they can spend before shopping unlike, for example, with a car purchase where added features and flexible financing are part of the negotiation and decision.
* It offends the potential seller to hear your advice to ask $1,995,000 when $2,000,000 might have kept the good atmosphere and sealed the exclusive.

Broker_Confidential is not suggesting you discard psychological pricing in all situations. We ARE suggesting you think before you act instead of just following the herd. If you’re going to use it then learn something about it. There are many studies on the subject.

At the end of the day, honesty and transparency is the best policy. Real estate buyers are generally savvy people. You are brokering one of their most important purchases, not selling them a Walmart T-shirt. They are more likely to appreciate you respecting their intelligence by quoting the asking price as $1,000,000 than they are buying the apartment on impulse because it is ONLY $999,999.

Tell us what YOU think. Your comments, questions, suggestions are welcome!