Pricing Advice: Make the Last 3 Digits -500

There are very few people with Matt Bell’s zeal for negotiating. He is 6’5”, with a large, slow smile that seems to bespeak an unused capacity for terrific violence, and he is faultlessly congenial. The best way to summarize our friendship is to say that he taught me to shotgun a beer for the first time at the age of 34. I wasn’t very good at it.
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Working together at Plumtree, we once took an elevator to the penthouse floor of a massive bank’s headquarters to ask for a $4 million deal. We rode in silence, hands in our pockets for the first 40 floors. When the elevator was about to ding, I opened my mouth to say, “I hate asking for money.” Before I could, Matt said, “Let’s make it $5 million.”

It turned out to be the largest deal in Plumtree’s history, triumphantly negotiated by the bank back to $4 million, and it helped Matt buy the house that he just sold through Redfin. While he was still haggling last week over the cost of roof repairs, we went to lunch, and Matt began speculating on the list price most likely to result in the highest offer. It is the kind of conversation that makes me wonder if my friend is from another planet.

“Does a price that ends in -000, like $490,000 seem casual? Is $499,999 too blue-light special?” I stared into my salad. Little did I know that Redfin’s mad scientist, Mose Andre, was working on that very problem, crunching statistics on the data-set we pulled to calculate the Redfin Advantage.

To do the analysis, Mose took all the houses that sold in King County, Washington last year and grouped them by the last three digits of their list price. For example, one group would consist of all the houses whose list price ended with “-500,” like $499,500, $387,500, $831,500, and $1,230,500. The four most popular endings for list prices of houses in 2006 were “-000,” “-500,” “-900,” and “-950.” Less than 7% of properties were listed at prices that did not end in those four numbers.

Then we threw out new construction, which tends to sell at list price even if other incentives are involved; we also threw out some records where we couldn’t easily tell if it was new construction or not.

And then for each group we calculated the ratio of list price to final price. And it turns out that certain list prices did in fact tend to result in a higher premium over the list price.

The ending that resulted in the highest final price as compared to list turned out to be “-500,” as in $499,500 or $530,500. And the difference was significant: listing for $500 less than an -000 ending seemed to result in a final price that was $3,000 more.

Maybe rounding a list price to a nice, even “-000″ is like putting a big “negotiate me” sticker on a house’s back. Or, as Matt speculated, “A -500 ending sounds like you really thought about it, but it’s not a nickel-and-diming gimmick like -999.”

Price Ending Price Examples # in Sample % of List $ Over -000 Price Days on Market
Ending in -000 $600,000; $589,000 11,356 99.86% $0 (baseline) 70.25
Ending in -500 $600,500; $589,500 1,583 100.44% $3,501 69.72
Ending in -900 $600,900; $589,900 1,547 100.20% $2,009 70.43
Ending in -950 $600,950; $589,950 8,296 100.30% $2,635 72.44
All other prices $600,999; $589,312 1,612 100.13% $1,635 102.11

The column labeled “$ Over -000 Price” compares the final/list ratio for each ending using the -000 final/list ratio as a baseline since it was the lowest; we came up with a dollar difference by using a hypothetical final price of $600,000. The data for condos is also interesting, although there was only one price ending besides -000 that was popular enough to report on, -950. As you might have guessed, it was better than a price ending in -000:

Price Price Examples # in Sample % of List $ Over -000 Price Days on Market
Ending in -000 $400,00; $389,000 3,470 100.24% $0 (baseline) 58.52
Ending in -950 $400,950, $389,950 2,609 100.63% $1,555 67.02
All other prices $400,132; $389,908 2,133 100.35% $461 66.84

The “$ Over -000 Ending” was calculated using the “-000″ final/list as a baseline, just as before, but assuming a $400,000 average price for condominiums.

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Even though it makes me feel like a mutual fund to say it, Mose wants everyone to know that these numbers reflect what happened in 2006, not necessarily what will happen in 2007. Had we world enough and time, as well as more data, he says we would compare listing prices in which the first three digits were constant, and the last three varied. Mose is still a little traumatized by all the trouble our last report on MLS data created, which wasn’t even his fault… but he signed off his e-mail to me tonight by asking “why is this stuff so fun?”

Discussion

  • http://3oceansrealestate.com/blog Kevin Boer

    And then there’s the “lucky 8′s” theory…price a home such that the last three digits are 888, and you’ll appeal to a large and wealthy demographic: immigrant Chinese mainlanders, for whom the number 8 is apparently good luck.

  • http://www.redfin.com Glenn Kelman

    I love that theory Kevin…

  • http://www.whathasshedoneforny.com/ JS Beckerist

    And you know, we could also pander to the Satanic crowd… ;) Not me personally………. I’m just kidding! Cool ideas!

  • Tracey Taylor

    This is all fine and dandy, but I’d like to see picture captions on your posts so I know who’s who and just what the heck you’re up to!

  • Name aka nonymouse

    Cmon back Mose

  • http://www.mortgageclass.com/mortgagesecrets.aspx Matthew Moran

    Kevin,
    Very interesting analysis. Any plans to duplicate it for other markets; especially, the Washington, D.C. area?

  • Farzud

    Mose looks like he’s about 9 years old.

    Wasn’t Plumtree one of those robber-baron consultancies that got millions for scaring clients into “integration solution” deals that went nowhere?

  • http://www.redfin.com Glenn Kelman

    Farzud, the full name of Plumtree is Plumtree Software. Plumtree’s software is still actively used by millions of people and its business is generating profits within BEA.

    And would that we all looked as young and as intelligent as Mose!

  • http://anthjames.com Boston Real Estate

    This is a very interesting post. I am going to get some local stats posted on the Boston Real Estate market and see if our East Coast stats match your West Coast stats.

  • Dan

    Interesting but you did not consider that sellers who end a price in “000″ may indeed be expecting to negotiate, and perhaps list a little higher than someone firmer on price – who may tend to list ending in “500″. Either unconsiously or as a signal.
    Based on the data it’s not possible to say that ending in “500″ is likely to get you more money.

  • http://www.CashbackRealty.com David Gorman

    The real estate lobbyists have been successful in getting the TN legislature to enact a rebate ban which would make it illegal to give buyer broker rebates; thus creating a legal cartel. The legislature sided with the real estate agents and ignored the petitions from the DOJ. This is very troubling for free market competition and will harm the consumer. Please contact the Governor Bredesen and ask him to VETO House Bill 2095.
    See http://www.tennessean.com/apps/pbcs.dll/article?AID=/20070518/BUSINESS01/705180389

    David Gorman
    Real Estate Broker
    Cashback Realty.com
    http://www.CashbackRealty.com

    Governor’s Office
    Tennessee State Capitol
    Nashville, TN 37243-0001

    Phone: 615.741.2001
    Fax: 615.532.9711
    Email: phil.bredesen@state.tn.us

  • http://www.antalyahomes.com turkey real estate

    I find this very interesting and I will do the same about Turkey. Thanks Glenn.