03 Dec There’s A Reason 96 Percent Of All Home Prices End In Zero
Jed Kolko, Trulia|Nov. 12, 2012
What tricks do sellers and their agents use when setting the price of a home? To find out, we looked at the asking prices of homes for sale on Trulia since October 2011, excluding foreclosures, to see whether certain numbers show up in home prices more than others. We found that some numbers are a lot more popular than others, and different lucky numbers turn up in home prices in different regions of country. Of course, lucky numbers aren’t the only factor sellers and their agents use in setting asking prices. A seller who loves the number 54 isn’t going to price a home at $540,000 if it’s really worth $200,000. But they might work “54” somewhere into the price without straying too much from the home’s expected value, such as pricing at $200,540. To find patterns, we looked for numbers that appeared anywhere in the asking price, and we paid special attention to the “last non-zero digit” in the price. For instance, in the above example, the last non-zero digit of $200,540 is 4, and the last non-zero digit is 9 in $149,999, $259,900, and $11,900,000.
Nearly all home prices – 96% – end in 0, and the vast majority – 91% – end in 00. The last non-zero digit is the number that “costs” the least to set based on marketing psychology, tradition, or superstition because it won’t change the value of the home as much as digits further up in the price. It turns out that 9 is, by far, the most popular last non-zero digit in asking prices, so let’s start there.
The Power of 9
The number 9 shows up in a lot of everyday prices. A Ronco knife set costs $39.99, the featured product on Trader Joe’s website last week was roasted & mashed sweet potatoes for $2.49, and my 16-gig iPad mini is $329. Why do prices of goods so often end in 9? One theory is that people rarely have exact change when a price ends in 9, and in a traditional retail store the cashier needs to open the register to make change, and therefore can’t cheat the storeowner by pocketing the cash and not recording the sale. Of course, that’s irrelevant in a world of credit cards , debit cards, and online shopping, so another reason prices end in 9 is perception: those Ronco knives sound like a much better deal at $39.99 than at $40 because the price is in the $30 range, rather than in the $40 range.
Do home prices use the same psychology? Absolutely. Even though the vast majority of home prices end in 0, the most common last non-zero digit is 9: more than half – 53% – of home prices have 9 as their last non-zero digit. The next most common is 5, which is a nice halfway point between round numbers. No other digit comes close to 9 and 5.
Do sellers use 9’s to make asking prices seem cheaper? We put on our data-miner hardhats and dug a little deeper to find out. It looks like the answer is yes, for a couple of reasons:
1. Expensive homes are less likely to have a 9 in the price. Only 25% of homes listed for one million dollars or more have a 9 as the last non-zero digit, compared to 53% of all listed homes. Perhaps sellers think buyers who are ready to spend two million on a home won’t be fooled into thinking it’s a bargain at $1,999,900, and those buyers probably aren’t looking for bargains in the first place.
2. On homes with price reductions, the reduced price is even more likely to have a 9 as the last non-zero digit than the original price was. In other words, as sellers get more eager – or desperate – to sell, they’re more likely to price with a 9. On homes with reductions, the original price had 9 as the last non-zero digit 52% of the time, while the reduced price had 9 as the last non-zero digit 54% of the time.
Since lower-cost homes and reduced-price homes are more likely to have 9 in the price, it seems sellers or their agents use 9’s to signal a good deal.
Lucky Numbers Across the USA
Pricing with 9’s is a strategic move to make homes (or Ronco knives) seem like a better bargain. But what about lucky 7, unlucky 13, and other numbers with special meaning? Let’s spin through the digits:
13: For a variety of reasons, triskaidekaphobia is widespread. Lots of hotels and office buildings skip the 13th floor, and Friday the 13th has long been considered a highly unlucky day. Plenty of sellers skip the number 13, too. We looked for the number 13 anywhere in a home price – such as $136,000 or $213,900 – and found it to be much less common than the numbers on either side of 13. The number 13 appears in asking prices 13% less often than the number 12 and 17% less often than the number 14. 7: Where is 7 lucky? Las Vegas and Reno, of course, where 7’s are what you want to see on the slot machines. You might not think selling a home has a connection to gambling, but home prices in Nevada are more likely to have a 7 in the price than in the rest of the US. In Nevada, 3.8% of list homes have 7 as the last non-zero digit, compared with 2.8% of listed homes outside Nevada – which means that 7 is 37% more common in Nevada than in other states. Triple-7 is very rare in home prices anywhere – it’s found in only 8 out of every 10,000 asking prices – but is three times more common in Nevada than in the rest of the country. 3:16 and 6-6-6: These numbers represent the good and bad of Christian numerology. John 3:16 ranks #1 in many lists of the most popular Bible verses, even before Tim Tebow put those numbers on his eye-black. At the other extreme, the number 666 represents the devil. We guessed these numbers would resonate the most in America’s Bible Belt, which covers most of the South, aside from South Florida, and is disproportionately Baptist. (For our analysis, we used the Association of Religion Data Archives to identify counties with high shares of Baptists.) Our hypothesis held true: both 316 and 666 are significantly more likely to appear in Bible Belt home prices. The number 316 is 27% more likely to appear somewhere in a home price in the Bible Belt than in the rest of the country – though 316 is very rare everywhere, showing up in roughly 3.4 out of every 10,000 asking prices nationally. And good wins out over evil: the number 666 shows up in less than 1 out of every 10,000 asking prices. Even so, 666, like 316, is more common in Bible Belt home prices than outside the Bible Belt – 39% more common, in fact. Apparently, in this region, both God AND Satan are in the details. 8: Nevada may love its 7’s, and the Bible Belt its 316, but nothing approaches the importance of the number 8 in Chinese culture. The Chinese word for 8 sounds like a word that means “prosper,” “fortune,” or “wealth,” making 8 a very lucky number in Chinese culture. Need proof? The Beijing Olympics officially began at 8:08:08 pm on 8/8/08, and United Airlines flight 888 is non-stop San Francisco to Beijing. For home prices, we compared the prevalence of 8’s in neighborhoods where the US Census reports that the majority of residents are of Asian ethnicity, like Monterey Park in Los Angeles and Flushing in Queens, NY, with the rest of the US. (The Census doesn’t distinguish between Chinese and other Asian backgrounds.) In non-Asian-majority neighborhoods, 8 is the last non-zero digit in just 4% of home listings. But in Asian-majority neighborhoods, 8 is the last non-zero digit in 20% of home listings. And, among homes listed for at least a million, a whopping 37% of homes in Asian-majority neighborhoods have 8 as the last non-zero digit! Setting the right asking price for your home isn’t all science and it isn’t just an art: sellers and their agents pick numbers to signal their strategy, and to appeal to the traditions and superstitions of local buyers. Housing is local, and so are lucky numbers in home prices. And that’s just one more reason to know the market when you’re selling your home.
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