The Effect of Listing Price Strategy on Real Estate Negotiations: An Experimental Study

46 Pages Posted: 19 Mar 2014 Last revised: 7 Jun 2016

See all articles by Eric Cardella

Eric Cardella

Texas Tech University - Rawls College of Business

Michael Seiler

College of William and Mary

Date Written: October 1, 2015

Abstract

When selling a home, an important decision facing the homeowner is choosing an optimal listing price. This decision will depend in large part on how the chosen list price impacts the post negotiation final sale price of the home. In this study, we design an experiment that enables us to identify how different types of common list price strategies affect housing negotiations. Specifically, we examine how rounded, just below, and precise list prices impact the negotiation behavior of the buyer and seller and, ultimately, the final sale price of the home. Our results indicate that the initial list price strategy does play an important role in the negotiation process. Most notably, a high precise price generates the highest final sale price, smallest percentage discount off the list price, and the largest fraction of the surplus to the seller, while just below pricing leads to the lowest final price, largest percentage discount, and smallest fraction of the surplus to the seller. Interestingly, these effects generally attenuate with negotiating experience. Importantly, our experimental results are generally consistent, both in direction and magnitude, with the limited transactions-based empirical studies relating to real estate listing prices.

Keywords: Real Estate Negotiations, List Price, Just-Below Pricing, Rounded Pricing

JEL Classification: C91, D03, R30, C70

Suggested Citation

Cardella, Eric and Seiler, Michael, The Effect of Listing Price Strategy on Real Estate Negotiations: An Experimental Study (October 1, 2015). Journal of Economic Psychology, Vol. 52, 2016. Available at SSRN: https://ssrn.com/abstract=2410847 or http://dx.doi.org/10.2139/ssrn.2410847

Eric Cardella (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

Michael Seiler

College of William and Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

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