Wednesday, November 14, 2012
Do You Feel Lucky? from the Wall Street Journal
From this past weekend's Wall Street Journal. I just encountered this when a potential buyer wanted to include $888 at the back of an offering number and I said, "Wha?"
Do You Feel Lucky?
In Vegas, home sellers love listings with 7's, but in Asian neighborhoods, beware of 4's. When pricing in residential real estate is purely a numbers game
Just like the lottery, real estate can be a numbers game in which superstition plays a role. According to research by real-estate website Trulia, "luck" is frequently linked to the last nonzero digit of homes for sale (the eight in $528,000, for example). In Asian-majority neighborhoods, 20% of listings end with a lucky eight, compared with 4% of listings in areas where Asians are a minority.
It's not just Asians who rely on luck. Home-sellers in Nevada—especially Las Vegas—look to lucky seven to unload their homes. Listings with a seven before the zeros are 37% more common in Nevada than in the rest of the U.S.
In the Bible Belt, defined as the Southeast and south-central U.S., homes are 27% more likely to include 316 in the listing price, a nod to John 3:16, a touchstone New Testament verse. Surprisingly, the numbers 666—considered to represent evil—are 39% more common in the Bible Belt than elsewhere in the U.S. And throughout the country, the number 13 is about 15% less likely to appear than either 12 or 14.
But the listings superstition appears to be strongest in neighborhoods where Asians make up more than 50% of the population, according to Trulia data of all homes listed for sale, excluding foreclosures, from October 2011 to the present. The affinity for eight comes across most frequently in luxury homes over $1 million, with 37% of listings ending in an eight before the zeros.
The Chinese pronunciation of eight is similar to the word that means "prosperity" or "wealth," says Zili Yang, professor of economics at Binghamton University. Four sounds similar to the Chinese word for "death," making it a very unlucky number in Chinese culture, Prof. Yang adds. "All businesses try to avoid it in all occasions. We don't even want to put it onto our car plates," he says.
Brent Chang, a real-estate agent with his mother, Linda Chang, with Coldwell Banker San Marino in California, says his clients stay away from fours in nearly all circumstances. He says about 85% of his Asian clients use numerology when buying or selling. "If we suggest $2 million for a property, they will want to price it at $2,188,888. They'll put as many eights in there as possible," Mr. Chang says.
Manoj Thomas, a marketing professor at Cornell University, says lucky numbers are a subconscious strategy used by sellers: If a person believes one number brings him luck and uses it more frequently, it will seem intuitive to him, and he will feel more comfortable using it.
But numbers—and their placement—have a subconscious effect on buyers, too. People tend to look at digits on the left, says Prof. Thomas, who studies the psychology of pricing. Prices with lower left-hand-side numbers give buyers the impression that they're getting a better deal.
That's why prices are often listed with multiple nines, like $19.99, says Alan Cooke, a marketing professor at the University of Florida. "People mentally round down, dropping the cents off of $19.99 and seeing it as $19 and not $20," he says.
The same strategy can be seen in homes priced under $1 million, where 54% of homes have prices ending in a nine, according to the Trulia data. But the picture changes for homes at the higher end: Only 25% of homes that cost more than $1 million end in a nine. One theory: Nines are associated with mass consumer goods, making them less appealing to high-end buyers, says Jed Kolko, chief economist and head of analytics at Trulia.
And pricing psychology may be a tougher game as prices go up. "It's harder to make a $3 million home sound inexpensive," Mr. Kolko says.
Instead, high-end home sellers gravitate toward the number five. With homes over $1 million, 55% have a final nonzero digit of five, such as $2.5 million. Under $1 million, only 26% of listings have the five. Five is a common default number when people end their price listing, Mr. Kolko adds.
"Five does have a special status in our minds," Prof. Thomas says. "We see it as the midpoint on the 1 to 10 scale, and we tend to spontaneously compare any single digit as higher or lower than five."
After a homeowner arrives at an approximate value of his house, he can fine-tune the price by changing the numerical pattern, Prof. Thomas says. "The makes a difference," he adds.
Using precise numbers can give the sense of a bargain, he says, because precise numbers are usually used for lower-cost purchases, like a grapefruit, while round numbers are reserved for bigger purchases. "You can list a house for $500,000, or you can list it for $505,550," he says. "The second one seems like a better deal."
But the strategy can backfire if the number is too precise. A sale price of $1,328,972, for example, can turn potential buyers away, Prof. Cooke says. Since that kind of "bizarre" number isn't used often in daily life, it seems harder to work with, and people may subconsciously reject using it.
For some, lucky numbers are purely a way to stand out in the real estate scene. Triple sevens are three times more common in Nevada than in the rest of the country, but Tina Ott, who works with her family within the Coldwell Banker Woodbury office in Minnesota, has been listing homes with the lucky trio since 1995. "Instead of $319,900, we'll do $319,777," Ms. Ott says.
The strategy works twofold: it bumps the 777 listings up before the 999s when listed by price, and it also puts clients at ease in what can be a stressful process.
"When we're getting ready to get to the pricing part, which can be a tense subject, it helps soften the process," Ms. Ott says. "We try to make it a little lighter by asking, 'Shall we try our luck?' "
Crazy 8 Effect on Addresses
The impact of numbers goes beyond pricing. The street address matters, too.
In a paper presented two years ago, called "Superstition in the Housing Market," Nicole Fortin, professor of economics at the University of British Columbia, found that home buyers in Chinese neighborhoods in the metro Vancouver region were willing to pay a premium for lucky numbers in their street addresses.
Ms. Fortin says buyers paid a premium of 2% to 3% for homes prices that ended with an eight, while sellers had to accept a 2% discount if they were selling a house that ended with a four. The trend was most pronounced among luxury homes.
"It's a luxury to get that number. It's considered to be prestigious," she says.
Brent Chang, a real-estate agent in San Marino, Calif., explains the thinking: "If you have a listing, and the address is 180, you know Asian buyers will be very interested in the house because it's so hard to change the address."