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The effect of listing price strategy on real estate negotiations: An experimental study

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  • Cardella, Eric
  • Seiler, Michael J.

Abstract

When selling a home, an important decision facing the homeowner is choosing an optimal listing price. This decision will depend in large part on how the chosen list price impacts the post negotiation final sale price of the home. In this study, we design an experiment that enables us to identify how different types of common list price strategies affect housing negotiations. Specifically, we examine how rounded, just below, and precise list prices impact the negotiation behavior of the buyer and seller and, ultimately, the final sale price of the home. Our results indicate that the initial list price strategy does play an important role in the negotiation process. Most notably, a high precise price generates the highest final sale price, smallest percentage discount off the list price, and the largest fraction of the surplus to the seller, while just below pricing leads to the lowest final price, largest percentage discount, and smallest fraction of the surplus to the seller. This pattern seems to be largely driven by sellers making persistently higher and more precise counter-offers throughout the negotiation process when the initial list price is high precise. Interestingly, these effects generally attenuate with negotiating experience. Importantly, our experimental results are generally consistent, both in direction and magnitude, with the limited transactions-based empirical studies relating to real estate listing prices.

Suggested Citation

  • Cardella, Eric & Seiler, Michael J., 2016. "The effect of listing price strategy on real estate negotiations: An experimental study," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 71-90.
  • Handle: RePEc:eee:joepsy:v:52:y:2016:i:c:p:71-90 DOI: 10.1016/j.joep.2015.11.001
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    Cited by:

    1. Repetto, Luca & Solis, Alex, 2017. "The Price of Inattention: Evidence from the Swedish Housing Market," Working Paper Series 2017:10, Uppsala University, Department of Economics.

    More about this item

    Keywords

    Listing price; Real estate; Negotiation; Flexible price; Experiment;

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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