Do Rounding-Off Heuristics Matter? Evidence from Bilateral Bargaining in the U.S. Housing Market

73 Pages Posted: 13 Apr 2023 Last revised: 4 Mar 2024

See all articles by Haaris Mateen

Haaris Mateen

C. T. Bauer College of Business, University of Houston

Franklin Qian

UNC Kenan-Flagler Business School - Finance Department; UNC Kenan-Flagler Business School

Ye Zhang

Stockholm School of Economics - Finance Department

Tianxiang Zheng

University College London (UCL) - Department of Economics

Date Written: October 1, 2023

Abstract

Using confidential offer-level data from the US housing market, this paper analyzes the impact of various listing and counteroffer pricing strategies in the housing bilateral bargaining process. We observe that sellers tend to cluster their list prices around “charm” numbers (e.g. 349,999) and round numbers (i.e., 350,000), while buyers' counteroffers mainly cluster around round numbers. Through the repeated sales approach, we demonstrate that these pricing strategies significantly influence housing transaction outcomes. Round and charm listing prices are advantageous during bidding wars, leading to higher sales prices and faster transactions, while also attracting more buyer offers. However, in colder markets, round listing prices may result in lower sales prices due to the anchoring effect. Regarding the effects of buyer counteroffer pricing strategies, our findings indicate that round counteroffer prices often lead to lower purchase prices and quicker transactions compared to precise counteroffer prices, despite increasing the risk of impasse. Additionally, we discover a mimicry effect: when buyers mimic the precision of sellers' charm and precise listing prices, the risk of impasse significantly decreases despite the potential for higher purchase prices and slower transactions. Overall, this paper provides novel insights into the effectiveness of different pricing strategies in housing bargaining.

Keywords: Real Estate, Heuristics, Negotiation, Bargaining

JEL Classification: D10, D83, D91, R21, R30

Suggested Citation

Mateen, Haaris and Qian, Franklin and Zhang, Ye and Zheng, Tianxiang, Do Rounding-Off Heuristics Matter? Evidence from Bilateral Bargaining in the U.S. Housing Market (October 1, 2023). Available at SSRN: https://ssrn.com/abstract=4406954 or http://dx.doi.org/10.2139/ssrn.4406954

Haaris Mateen

C. T. Bauer College of Business, University of Houston ( email )

United States

Franklin Qian (Contact Author)

UNC Kenan-Flagler Business School - Finance Department ( email )

UNC Kenan-Flagler Business School ( email )

Chapel Hill, NC
United States

Ye Zhang

Stockholm School of Economics - Finance Department ( email )

Stockholm
Sweden

HOME PAGE: http://https://www.yezhang.space/

Tianxiang Zheng

University College London (UCL) - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

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