Is it Better to Underprice or Overprice a Listing?

Some real estate agents price a property lower than nearby homes, hoping that a bidding war will break out. New research, however, suggests that setting the initial asking price 10 percent to 20 percent lower than comparable residences lowers the sale price by about $117 to $187, according to research published in the May issue of the Journal of Economic Behavior & Organization.

On the opposite end, an initial asking price 10 percent to 20 percent higher than comparables can yield a slight gain – $117 to $163 – in sales price.

The study, based on analysis of nearly 15,000 property deals in Delaware, New Jersey and Pennsylvania over a four-year period, pointed to “anchoring” as reason for the final sale price difference.

“Anchoring” refers to people’s tendency to rely on the first piece of information offered – the anchor – and to interpret additional information that follows based on the data they heard first.

In terms of real estate, “buyers (who heard that a seller wants a bit more money than similar nearby homes) will turn to the good attributes that justify the high price,” explains Grace Bucchianeri, a former University of Pennsylvania professor and co-author of the study.

She and former Penn lecturer Julia Minson also discovered that real estate agents usually recommend underpricing, in part to reach a deal earlier – an approach that saves the agent time and money.

The study, however, did not look at a listing’s time on market based on whether the seller overpriced or underpriced the property.

 






Source: Wall Street Journal (08/09/13) P. M3; Tanaka, Sanette

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