Charm pricing is very prevalent in our society. A product is advertised at $9.99 rather than $10 or $97.50 rather Charm Pricing and Real Estatethan $100. When sellers back off the rounded number by a few cents or few dollars to make something look less expensive, it's referred to as "charm" pricing.
Such pricing make sense for items sold at retail for a set price. But what about real estate pricing? Does a seller gain anything by setting the listing price to seem lower than it actually is, such as $149,900 instead of $150,000?
Marcus Allen of Florida Atlantic University and William Dare of Oklahoma State University did the research. They studied a large sample of home sales and discovered that when charm pricing was used, homes tended to sell closer to the listing price than those offered at a rounded price.
They concluded that when sellers use charm pricing, buyers tend to perceive that the listing price is close to the seller's reserve price (the lowest amount they will accept). Sellers appear to indicate the price is fixed, and they will accept a minimum amount of bargaining.
On the other hand, sellers who list homes with a rounded price seem to be indicating there is more room for bargaining. They expect this price to be a mere starting point for negotiation. They need a round figure only to position the property in the range of comparable properties.