The Effect of Pricing Strategy on Home Selection and Transaction Prices: An Investigation of the Left-Most Digit Effect Article

Beracha, E, Seiler, MJ. (2015). The Effect of Pricing Strategy on Home Selection and Transaction Prices: An Investigation of the Left-Most Digit Effect . 24(2), 147-161. 10.1080/10835547.2015.12092101

cited authors

  • Beracha, E; Seiler, MJ

authors

abstract

  • In this study, we examine whether homebuyers favor homes associated with just below pricing strategies or those with rounded prices (e.g., $199,900 vs. $200,000). The inclination for just below pricing allows sellers that use just below pricing to set a higher asking price without driving away potential buyers. Rounded priced homes, on the other hand, sell significantly faster and at a smaller discount from list price compared with just below priced homes. We find that the just below pricing strategy yields the highest transaction price relative to the true underlying home value. This suggests sellers exploit buyers' preference for just below priced homes with a higher initial listing price that outweighs the lower discount and shorter time on market associated with similar round priced homes, making just below pricing the more effective pricing strategy.

publication date

  • January 1, 2015

Digital Object Identifier (DOI)

start page

  • 147

end page

  • 161

volume

  • 24

issue

  • 2