A recent article in The Atlantic entitled "The 11 Ways That Consumers Are Hopeless at Math" discusses how businesses use fact and psychology to persuade us into purchases we ordinarily wouldn't have made. For example, slow sales of a $279 bread maker at Williams-Sonoma doubled when they placed $429 model beside it. The theory being that once the more expensive machine was placed beside the original, the original appeared to be a bargain.
Though the article deals primarily with in-store sales, as I read through the list, I couldn't help but notice how many points also related to the real estate world. When you're thinking of buying or selling a property, consider the following:
1. The 99 Cents Gimmick
Retailers have learned that putting prices on items that end with nine, such as $4.99, communicates to consumers that the item is discounted and or cheap. Though we all know $4.99 is essentially no different than $5, the perception of these two numbers by the consumer is very different. The same is true of pricing homes. At the time I wrote this article, there were 42 homes listed in Toronto for sale at exactly $499,900, but only two at $500,000. When trying to buy a property, versus sell one, you want to do the opposite and avoid the use of 9s. I always chuckle when I get on offer for a home that ends in a 9, like $699,999, as if that would be more appealing to my buyer than $700,000.
2. It's All Relative
We are heavily influenced by the first number. If we walk into a store and notice a pair of shoes priced at $2,000, the next pair, a similar shoe priced at $200 will seem like a deal. These same $200 shoes next to a $50 pair will seem like a rip-off. I see a similar phenomenon in real estate all the time, particularly with condos. Often, I'll see an overpriced condo sit on the market for weeks, until all of a sudden a similar, yet more overpriced unit hits the market. As soon as that happens, the first one all of a sudden seems a good deal and more often than not quickly gets sold.
3. You Often Want What You Can't Have
This third point is not actually related to math, but it's certainly a popular way in which stores persuade consumers into wanting something and is even more evident in the world of real estate. It's the old adage that people want what others have. If there's one thing I've learned about human behaviour in this business, it's that people also want what others 'want' and don't want something if no one else seems to want it. This has a lot to with why bidding wars get so out of hand. It's also why it's so important to not allow a property to sit on the market very long. Once people start thinking that no one wants a house, the house inevitably becomes unwanted.
The lesson to be learned here is to keep emotions out of your decision to buy or a sell a home. Consider the price in relation to what all other comparable homes have been selling for, not just the most recent. Don't assume that there's necessarily something wrong with a house that's been on the market for more than a few weeks. That's often where I find the greatest opportunities to get a deal.
Finally, have a concrete game plan whenever you're involved in a bidding war. Know what is the maximum amount you're willing to pay for the home and walk away if the price moves above it. It may seem to you like the perfect home at that moment, and that you'll regret not buying it for the rest of your life, but I promise you, another 'perfect' home will turn up soon. They always do.