Precision in a Seller’s Market: Round Asking Prices Lead to Higher Counteroffers and Selling Prices

• Published in: Management science Vol. 67; no. 2; pp. 1048 - 1055
• Main Authors: Leib, Margarita, Köbis, Nils C., Francke, Marc, Shalvi, Shaul, Roskes, Marieke
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01-02-2021; Institute for Operations Research and the Management Sciences
• Subjects: Agreements; anchoring; initial offers; Methods; negotiation; price precision; Prices; Pricing; Real estate; seller’s market; Selling; Transactions; Vendors; Netherlands
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.2019.3570

Precise, compared with round, asking prices lead to counteroffers and final agreements that are closer to the asking price. Consequently, popular advice for sellers is to set precise asking prices. We propose that the advice is useful, but only in a buyer’s market, in which buyers counter below the asking price. In a seller’s market, in which buyers counter above the asking price, sellers who wish to receive high counteroffers and sell for high prices should set round asking prices. A preregistered study (
n
= 1,809) shows that, compared with round asking prices, precise prices lead to higher counteroffers in a buyer’s market but to lower counteroffers in a seller’s market. The effect is driven by buyers’ use of a finer-grained pricing scale when countering precise asking prices. An analysis of transactions (
n
= 8,278) from Amsterdam’s 2017 real estate market, in which 70% of the properties were sold above the asking price, corroborates the experimental findings. Results show that increasing the roundness of the asking price by one decimal, for instance, from precise to the thousands to precise to the tens of thousands, was associated with an increase of 0.6% in the selling price, equivalent to €2,099 on average.
This paper was accepted by Yuval Rottenstreich, decision analysis.