Grocery stores have used it since forever. So have retailers. Pricing a product at $9.99 instead of $10 is a psychological trick that makes shoppers perceive a bigger price gap than there really is.
But a new academic study says the same tactic, known as “charm pricing,” is alive and well in real estate listings and can move a home’s final sale price by thousands of dollars. The study, published by researchers from Georgia Southern University, analyzed more than 62,000 home sales in Chatham County, Georgia’s MLS between 2006 and 2021. Charm pricing is defined as any listing with a “9” in the ten-thousands digit ($329,000 or $329,990, for instance).
Researchers found that charm pricing was used in 41% of listings overall, but there wasn’t an even spread. The most expensive homes used the strategy most often—50% of the time in the top price quintile, compared with 31% at the bottom. Interestingly, the study found charm pricing actually backfires on more expensive homes. On homes priced $350,000 to $1.1 million, charm pricing led to a 1.7% drop in final sale price, or about $6,000 on a $350,000 home, research showed.
For more affordable homes, charm pricing worked best. In the lowest price quintile, the strategy boosted sale prices by nearly 4%, particularly in markets with lower buyer demand, even though sellers had less leverage to begin with, the study revealed.
While it might seem gimmicky, the research suggests charm pricing can sway one of the biggest financial decisions homebuyers make. And, in some instances, the strategy can help sellers who need to sell fast drum up viewings and offers do so quickly, potentially fueling a bidding war that nets an even higher-than-asking sales price.
Back in the pre-Zillow era when buyers perused listings very differently, researchers who studied the “charm pricing” phenomenon ended up with similar results, suggesting the positive impacts persist outside of the internet browsing process that characterize home searches today.
However, agents who overuse the tactic on high-dollar listings may want to rethink the approach.
In a recent blog post, broker Pawli Paola Meyer, founding partner of Maison Pawli on Long Island, New York, pushes back on the overuse of charm pricing, noting that what works for retail doesn’t translate to pricing properties.
Meyer noted that in the mortgage process, appraisers select comps partly based on price range. That means a home charm-priced under a certain threshold, say $499,900, may get grouped with lower-value comps than a home listed at $505,000—even if the properties are similar.
She also pointed out that buyers tend to filter properties by round numbers in online searches. A home priced at $499,900 shows up in searches capped at $500,000, but it’s invisible to buyers filtering from $500,000 up. Those buyers, she pointed out, are often qualified to pay more.
As a result, charm-priced properties positioned just below a threshold instead of priced accurately from the onset could sit on the market longer and box sellers in on negotiations, Meyer explained.
“Pricing is the first and most consequential decision in a listing,” Meyer wrote. “Applying retail logic to that decision is not a strategy. It is a transfer of value from seller to buyer, laundered through a psychology that works everywhere except in a transaction where an independent professional determines what the asset is worth.”
