A new study from Tel Aviv University reveals that homeowners who use free classified ads to sell their properties might be losing more money than they realize. According to the research, homes listed on free platforms, like Israel’s Yad2, tend to sell more slowly and at lower prices compared to those advertised through paid services.
The study analyzed over 15,000 property listings on Yad2 from 2014 to 2016 and found a significant difference in outcomes between free and paid ads. Homes advertised through the paid service saw up to 130% more clicks and were sold 10% to 18% faster than those listed for free. More importantly, these properties fetched prices that were 3.5% to 3.8% higher, which translates to an extra $12,000 to $13,000 for the average sale.
The findings are tied to a psychological bias known as the "zero-price effect," which causes people to overvalue free services, even when paying a small amount could lead to better results. "People often don't realize the true cost of their decisions, especially when a service is offered for free," said Prof.
Danny Ben-Shahar, Director of the Alrov Institute for Real Estate Research at Tel Aviv University's Coller School of Management. "Our study shows that in the real estate market, opting for a free service can lead to a lower selling price and a slower sale, making it an expensive choice in the long run."
The researchers had a unique opportunity to observe this bias in action when Yad2 removed the option to post free ads for commercial properties in July 2019. Alongside this change, the cost of the platform's premium service increased. Despite the higher price, many property owners chose to pay for the premium service, illustrating how the perceived value of the free option diminished when it was no longer available.
Prof. Ben-Shahar, along with Dr. David Ash, a research associate at the Alrov Institute, found that these trends extended beyond just click rates and sales speed. “It’s important to realize that selling a home is the largest and most important deal in most people's lifetimes, averaging $350,000 to $500,000 for the sellers in our sample,” noted Ben-Shahar. He emphasized that while saving money on ad costs might seem attractive, the potential losses far outweigh the savings.
The study, soon to be published in the journal Real Estate Economics, sheds light on the broader implications of behavioral economics in real estate, showing how psychological biases can impact financial decisions in significant ways. For homeowners looking to sell, this research suggests that investing in a paid ad service could be a smarter financial move, potentially leading to faster sales and higher profits.
This study offers a cautionary tale for those drawn to the idea of a free service. As the researchers have demonstrated, when it comes to selling real estate, the old adage "you get what you pay for" might hold true.