“Sharp” Numbers Sell Houses

You’re selling your house. You set the asking price at a nice round figure--$420,000, let’s say. But if you had chosen to list the house for $420,399—almost $400 more--your chances of finding a buyer just might improve.

This finding, and others like it, derives from studies undertaken by marketing professor Manoj Thomas and colleagues at Cornell University’s Johnson School. Thomas and other consumer marketing researchers have found that people have an innate tendency to downplay the magnitude of precise numbers, such as $325,437, also known as “sharp” numbers, compared to imprecise figures ending in one or more zeros--the familiar round numbers like $325,000.

“A seller of a house can list the house for a more precise price such as $395,425, or the more round price of $395,000,” writes Thomas. “Is the buyer’s evaluation of the precise price likely to be any different than that of the round price?”

The answer lies in a quirk of human psychology related to number processing, Thomas says. A built-in “precision heuristic” leads us to the false conclusion that sharp numbers are usually smaller than round numbers. As a result, sharp prices are usually seen as smaller than round prices. The tendency to round off large, precise numbers to the nearest imprecise multiple of 10 leads people to unconsciously associate large, round numbers with, well, largeness. Conversely, “because people encounter large, precise numbers infrequently, they will associate precision with smaller magnitudes.”

How is this possible? Homebuyers are presumed to be rational people, with their own economic interests firmly in mind. Does a negligible increase or decrease in price—from a round number like 395,000 to a sharp number like 395,425--really make a house seem more affordable and possibly clinch the sale?

Thomas and coworkers analyzed 27,000 real estate transactions in two different states, based on extensive multiple listing records. “We found that more precise list prices are correlated with higher sale prices,” Thomas wrote. This is because “buyers perceive precise list prices to be lower, and therefore accept higher sale prices.” The more zeros there are in the asking price of a six-figure house, the less likely prospective buyers are to judge it affordable.

Article Author: Dirk Hanson

Dirk Hanson is a freelance science reporter and novelist who lives in Minnesota. He has worked as a business and technology reporter for numerous magazines and trade publications, and is the author of "The Chemical Carousel: What Science Tells Us About Treating Addiction."
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