Effective Low-Balling in the Real Estate Business

When my parents bought our house a few years ago, they were told that the current owner would accept offers ‘in excess of’ a certain amount. Taking this to mean that this was the asking price, my parents offered this amount but decided that they would not pay any more than this. However, it later turned out that the term ‘in excess of’ was misleading – the owner actually wanted a substantial amount more than the perceived ‘asking price’. Despite having previously been so adamant that they would not increase their offer, my parents eventually (reluctantly) paid the amount the owner wanted because they did not want to lose the house. As it turns out, this is quite a common practice among estate agents.  Home owners who ideally want a certain price for their house but think that advertising at that price will put people off instead say they will only accept offers ‘in excess of’ an amount which is significantly lower than their desired price. Once they receive this offer, the price goes up.

This is an example of the low-ball technique. The principle of this technique is that, after having agreed to purchase something for a certain price, an individual is more likely to then pay above this initial price for the item. This is because once a person has been induced to make a behavioural decision such a purchase, they have made a commitment. The person selling the item is then at liberty to increase the cost and the buyer is likely to comply with this because they perceive themselves as committed to buying the item.

This tactic was demonstrated in a study by Cialdini, Cacioppo, Bassett and Miller (1978). Here, 63 randomly selected Psychology students were telephoned by a confederate and asked to take part in an experiment in exchange for 1 hour of class credit. To most participants, this would seem like a good deal. However, unlike control participants, who were told in advance that the experiment was at 7am, partcipants in the low-ball condition, were first asked whether they would take part and, if they accepted, were then informed that the experiment would take place at 7am (increasing the cost of taking part). The compliance rates were much higher in this low-ball condition, as shown in the figure below.

	Low-ball	Control
Agree	19/34 (56%)	9/29 (31%)
Disagree	15/34 (44%)	20/29 (69%)

Table 1: Agreement rates across control and low-ball conditions.

This shows that once the students had agreed to take part in the experiment, they were likely to stick to their word even when the cost of doing so was increased (the low-ball condition). Conversely, control participants, who had not previously agreed to take part where more likely to decline when told of the high cost of taking part. This suggests that when asked to perform a costly action outright, the majority will refuse. However, when asked firstly to agree to what seems like a good deal before the high cost is introduced, the individual is more likely to comply so as to be consistent with their earlier decision. In the case of my parents, it is unlikely that they would have agreed to the price they eventually paid if the house had been advertised at this price. However, after agreeing to what seemed like a good price, they were unwilling to back out once this price was increased.

 Therefore, the message is clear - in order to make an individual indulge in a high-cost behaviour, get them to agree to a lesser, more reasonable deal first before raising the cost!

References

Cialdini, R. B., Cacioppo, J. T., Bassett, R., & Miller, J. A. (1978). Low-ball procedure for producing compliance: Commitment then cost. Journal of Personality and Social Psychology, 36, 463-476.