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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