When free costs you $13,000

Spend $70 to get $13,000. Sounds good, right?

But that’s not what property owners are doing.

In a study of the real estate market, researchers compared results from sellers who ran a free listing on a property site to those who upgraded to a paid listing for $70.

Overwhelmingly, 95% of sellers preferred the free listing service.

However:

“the premium service increased the chance of selling the property by 10% to 18% daily, increased the number of clicks on the ad by 117% to 130%, and the clicks on the sellers' phone number by 108% to 122%. 

…those who paid for the premium service attained a higher demand and a faster sale. And most importantly: they sold their properties at higher prices. Statistically identical homes offered in the paid-premium service were sold for 3.5% to 3.8% higher price than homes offered in the free service, a difference of about $12K–$13K per sale."

So why is this happening?

People overvalue free.

It’s called the ‘zero-price effect’, where people are swayed by goods and services that are free. Dropping a price by one dollar from $2 to $1 might increase demand a little, dropping it from $1 to zero will increase it a lot.

That’s why offering a product trial for as little as $1, as I’ve seen businesses like Shopify do, will get a different response to a free trial. 

Different might be good, of course. It depends on who you are trying to attract and what behaviour you are seeking to influence.

Ref: Ash, D And Ben-Shahar, D, Zero-price effect and consumer welfare: Evidence from online classified real estate service, Real Estate Economics (2024).