Homeowners opt for free real estate listings even when they lose money, says new study
In a new look at the ‘zero price effect,’ researchers from Tel Aviv University find that consumers gravitate towards an unpaid option, though it may be costlier in the long term
Saving money by posting free classified ads on sites such as Yad2 to sell a home rather than using paid options may have costly consequences for Israeli homeowners in the long run.
A July study from Tel Aviv University found homes advertised via free methods sold at significantly slower rates and for lower prices than those posted through paid services. According to the research by Prof. Danny Ben-Shahar, director of the Alrov Institute for Real Estate Research at Tel Aviv University’s Coller School of Management, and Dr. David Ash, a research associate at the institute, those listing homes on Yad2, the leading classified services site in Israel, lose out on a wad of extra cash, despite saving money while posting the initial advertisement.
By analyzing over 15,000 listings between 2014 and 2016 on Yad2, Ben-Shahar and Ash found a noticeable gap between paid and free ad services: properties listed through paid services sold for 3.5 percent to 3.8% more than those using free listings. That’s an average of $12,000 to $13,000 earned.
Homes sold via paid ads also got more attention and moved faster, gaining 130% higher clicks than those listed on free ads and selling 10% to 18% quicker.
The study put the “zero price effect” on full display. This psychological bias shows that people place a heavy weight on things being free, even when spending some money could have a larger financial benefit long term. The researchers say they believe their report to be the first to present evidence of a tangible economic loss thanks to the zero-price effect, adding to growing research into the human psychological impact on economic results.
The specific behavioral economics phenomenon is a result of a lack of rational thinking when it comes to financial decisions, say the researchers, leading homeowners to forego standard cost-benefit comparison due to impartiality toward free goods and services.
“Zero is a special number. People feel and think that a service or product that they get for free has better qualities, even if you give them the same product or the same service for a difference of one cent,” Ash told The Times of Israel. “The ‘free’ is the problem. When someone sees free, it’s hard. If you see a free service, you think it’s better, even though the premium service that costs money is much better.”
While residential real estate can still be listed for free, Yad2 began charging for its previously free basic package for commercial real estate in 2019, as well as upped the cost of the higher-tier premium service. After eliminating the chance to opt for an entirely free service, “a very significant difference” in the number of sellers selected the more costly of the two available for-pay options, putting the behavioral economics of home sales and pricing on display.
Prior to the change, 94% of sellers chose the basic option — which was free at the time. But after the basic option was no longer free, only 85.7% opted for it, showing that once users had to spend any kind of money, they were willing to spend more. The “free” option had been the only thing in the way.
Ben-Shahar says the study as a whole serves as a warning for homeowners looking to sell to pay attention to their own biases and think logically when making selling decisions.
“The tendency to be attracted to a zero price, one needs to be very cautious,” Ben-Shahar told The Times of Israel. “Generally, we do a cost-benefit analysis, but when things come to a zero price, we don’t do this analysis in the same way.”
Even though the ad is free, Ben-Shahar points out the deeper truth: “There is a cost.”
