The Effect of Listing Price Strategy on Transaction Selling Prices
Posted: 2 Jul 2014
Date Written: July 1, 2014
While true underlying home values are expected to be randomly distributed, actual residential listing prices tend to be highly clustered. Particularly, more than 75% of the homes in our sample are associated with a round or "just below" round asking price. This study provides a theoretical and empirical examination of how the thousands digit in a home's asking price is related to the final transaction price relative to its true underlying value. Our findings suggest that, on average, homes listed using a "just below" pricing strategy are associated with the greatest discount negotiated relative to the asking price. However, the higher initial degree of list overpricing reflected in "just below" is the most effective pricing strategy for the seller in terms of a greater dollar yield relative to value. These empirical findings have economic significance and are robust across both "buyer" and "seller" housing markets, new versus existing homes, and across multiple home price ranges.
Keywords: List pricing strategies; Time on the market; Residential real estate
Suggested Citation: Suggested Citation