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Hi, I'm Ella Gurfinkel, your host of the AskElla Show and senior loan officer at Fairway Independent Mortgage. On my podcast, I cut through the noise to bring you honest conversations about real estate, mortgages, and financial planning.
I interview industry experts to tackle everything from homebuying basics to complex topics like reverse mortgages, trusts, and market trends. With decades of experience, I'm passionate about dispelling myths and providing clear, actionable advice.
Whether you're buying your first home, refinancing, or planning for retirement, I'm here to help you make informed decisions. Join me for straightforward talk about real estate and beyond!
Now think about it. Netflix, $19.99. That eye cream you've been obsessing over on Amazon, $34.97. The Crocs your kid is begging for $49.99. Not 20, not 35, not 50. That is not an accident. That is one of the oldest psychological tricks [music] in the industry of money. And once I show you how it works, you're going to see it everywhere, including, by the way, in [music] places that have absolutely nothing to do with skincare or streaming services. I'm Ella Berfinkle, senior loan officer with over 30 years of experience. [music] And today we're talking about charm pricing. What it is, where it came from, why your brain literally cannot resist it, and yes, what it has to do with your mortgage. Now, stay with me. This one's going [music] to blow your mind.
Let's go back to 1879, Dayton, Ohio. There's a guy named James Riddy. He owns a saloon. The place is packed every single night. Great whiskey, great wine, great cigars. Business should be booming. Except it's not because James [music] Ready is pretty sure his bartenders are stealing from him. Pocketing cash after every pour [music] and he cannot prove it. The stress gets so bad he has a nervous breakdown and gets on a boat to Europe to recover. on that boat. He wanders into the engine room and sees the mechanical device automatically counting the rotations of the ship's propeller. And [music] something clicks. He thinks, "What if I built a machine that counted every single coin transaction in my bar?" A machine that forced clerks to open the register for every sale. He goes home, he builds it, he [music] calls it the incorruptible cashier. A coal magnet named John Patterson sees it, buys the patent for what would be about 250,000 in today's dollars, and starts a little company. You might have heard of it, National [music] Cash Register, NCR. Now, here's where charm pricing comes in. When you set a price at $4.99 instead of $5, the customer has to give you a $5 bill. You have to make change. You have to open the register. And that means every single transaction [music] is recorded. The clerk can't just pocket a five and pretend the sale never happened. Charm pricing wasn't born as a marketing strategy. It was born as a theft prevention tool. But then merchants noticed something interesting. Products priced at $4.99 were out selling products priced at $5 even. And nobody could quite explain why until science got up. Here's what actually is happening in your [music] brain when you see a price. Researchers call it the left digit effect, and it is wild. Your brain reads numbers from left to right, and it anchors on that first digit before it even finishes [music] processing the rest. So, when you see $4.99, your brain registers four before it even gets to the 99. It shortcuts the whole thing to about $4. But $5, your brain needs five. Full stop. Cornell marketing professor Manoj Thomas ran a study on this and had people compare the price difference [music] between generic and premium peanut butter. When the generic was $2.99 and the premium was $4 even, people felt like there was a huge gap between them. When the generic was $3 [music] and the premium was $41, people felt like the gap was much smaller. The actual price difference identical 1 cent same gap but the brain process it completely differently. Thomas calls it almost like a visual illusion. [music] And here's the part that gets me. The effect happens even when you know about it. Even when you're aware of the trick, you still fall [music] for it. Your brain just can't help itself. Now, this is where it gets really interesting for those of us in the financial world. You think the charm pricing only lives at Target and Amazon? Think [music] again. The left-digit effect shows up everywhere money is involved. And in real estate and mortgage lending, it is absolutely [music] everywhere. A home listed at $499,000 feels dramatically cheaper than one listed at 500,000. Even though the difference is [music] $1,000 on what is likely a 30-year loan, we're talking about $4 or $5 monthly difference in your payment, but [music] that $499k listing, it gets more clicks, more showings, more offers. Sellers know this. Listing agents know this. [music] And if you don't know this, you're the one getting played. Same thing happens with [music] interest rates. A rate of 6.49% feels meaningfully different from [music] 6.5. Your brain reads six in both cases, but something about that 49 makes it feel like a better deal. It's the same trick, different context. And here is one that really gets me. Monthly mortgage payments. I've seen lenders structure loans specifically to land a payment just under a round number, $1,998 [music] instead of $2,000 a month. because $1,9.98 [music] feels like under $2,000 even though it is for all practical purposes $2,000 a month. Now, that is not a coincidence. [music] That is strategy and it works on almost everyone. Now, here is the twist, and this one surprises [music] every time. Charm pricing doesn't work the same way at every price point. Walk into Walmart. Practically nothing ends in 000. The most common last digit seven as in 97 cents. [music] It is everywhere. Walk into a high-end boutique or a luxury real estate listing, suddenly everything ends in a zero. $17 flake salt at Arowan. Yes, that's a real thing. And yes, it [music] is $17 flat. Why? Because premium brands figured out that 99 at the end has become so associated with bargain hunting with discount bins and clearance racks that it actually cheapens the perception of the product. Round numbers signal [music] confidence. They say this thing is worth exactly what we're asking. [music] No games, no tricks. And this plays out in real estate, too. A $2 million listing feels [music] different from a $1,999,000
listing. One feels like a serious established property. The other feels like someone is trying just a little too hard to stay [music] under a threshold. So, what do you do with all of that? First, slow down when you're comparing prices. The left digit effect is most powerful when you're moving fast. When you take a breath and actually do the math, the illusion starts to break down. Second, [music] when you're looking at homes, don't let a listing price ending in a nine make you feel like you're getting a deal. And don't let a round number make you feel like you're overpaying. Look at the comps. Look at the market data. Look at what similar homes actually sold for. That's the real number. [music] Third, and this is the big one, when a lender shows you a monthly payment, ask them to show you the full picture, the rate, the term, [music] the total interest paid over the life of the loan. Because a payment engineered to land at $1,997 a month might be hiding a rate that's costing you tens of thousands of dollars over 30 years. Pretty numbers are not the same as [music] good numbers. And in mortgage lending, that distinction can cost you or save you a fortune. Look, charm pricing has been around since 1879. It survived the invention of the internet, the death of the penny, and every retail revolution in between. It works because our brains are wired to take shortcuts. And that's not going to change anytime soon. But now, you know, and knowing is half the battle. If you want someone in your corner who's going to show you the real number, not the pretty ones, engineered to make you feel good, book a free consultation with me. No charm pricing, no psychological tricks, just honest math and straight talk. I'm Ella Gerinkle. I'll see you on the next one.