With the complex nature of the rental market and economic landscape, property value and rental pricing can no longer rely solely on mere numbers and square footage. Delving into the psychology at play within the mind of a potential tenant may reveal several psychological factors at play. These factors can be strategically applied by property owners to favourably influence the outcomes of their rental properties. In this blog, we discuss those psychological factors and how these can affect you getting tenants in the door.
Perceived Value
The perceived value of a property refers to how much a tenant thinks it is worth based on their perception of it. This perception is one of the primary factors determining what rental pricing a tenant is willing to agree to. Location, property type, market trends, and emotional appeal are among the factors that may influence someone’s view of a property. Applying yourself to any one of these factors can help to increase the tenants perceived value of the property, which in turn will facilitate reaching a deal that works for both you and your tenants.
Low Price Paradox
While it may seem counterintuitive, there may be unintended consequences to setting the rent for a property too low. Tenants may perceive the property as less valuable, which may encourage doubts to foster in their minds as to the quality or desirability of the property. Striking the right balance is crucial to communicate the value of a property. Not every tenant is the right tenant, but setting a price with the knowledge of leeway may help you to engage with tenants that are more serious about the property. In turn, you may be able to build a positive relationship with them earlier on in the tenancy.
Anchoring Effect
Further affecting rental pricing is the anchoring effect, a cognitive bias whereby individuals rely heavily on the first piece of information they receive. Establishing a higher initial price point can help create a reference point against which tenants will judge subsequent prices. This information will then be used in the tenant’s decision making and may make lower prices achieved through negotiation or other means appear more appealing. This, along with an understanding of the previously mentioned low price paradox, may play into strengthening your initial sales pitch.
Price Framing
Price framing may also affect tenant perceptions of rental pricing. Presenting weekly pricing, for example, may make the property appear more affordable to tenants who focus on short-term costs rather than long-term expenses. This framing technique can be a powerful tool, as evidenced in a wide variety of sales settings. Think about your local supermarket, highlighting the price that a product has been reduced from rather than reduced to. This offers the feeling of a time-sensitive bargain, invoking a stronger desire within the buyer to complete the purchase sooner rather than later.
Scarcity Effect
Introducing an impression of scarcity to a potential tenant can raise a feeling of urgency to act. Landlords may employ limited-time offers or highlight high demand to create this sense of urgency, encouraging potential tenants to act swiftly and potentially agree to higher rent prices more willingly. In practice, offering transparency to the prospective tenant may be enough to achieve this. What could be perceived as a throwaway comment of “we have a lot of viewings booked in for this property…” could be enough to ignite a flame of desire that otherwise may have been missing.
Social Proof
Social proof refers to the tendency of individuals to trust and follow something if others have done so before them. Positive reviews and testimonials from past tenants serve as social proof, instilling confidence and interest within a potential tenant. Utilising social media and user-generated content (UGC) may increase the credibility of a landlord or letting agent. UGC may also open a pathway for potential tenants to discover more reviews and testimonials. If you are not already utilising the free and powerful service of social media, then do. A simple “post-a-week” mentality could be enough to elevate your company’s public image, especially in your local area.
Other Factors
A phenomenon known as the endowment effect sees property owners frequently overvaluing their own assets and listing higher rent prices. Loss aversion (real or potential loss being perceived by individuals as psychologically or emotionally more severe than an equivalent gain) may lead to tenants being more sensitive to increases in rental prices compared to the potential benefits or amenities offered. Similarly, status quo bias (a preference for things to stay the same) may negatively influence perceptions of price changes. This bias may lead to tenants perceiving prices to be unreasonably high.
Availability heuristic is the tendency to make decisions based on the most readily available information, regardless of whether or not it is actually the best information. This phenomenon can also affect what a tenant is willing to spend based on conversations with others. But it’s not all doom and gloom when it comes to reaching a favourable cost for the tenant. If you incorporate this with the scarcity principle, you can create bidding wars which should end in achieving a price that also works for the landlord.
Emotional Connection
Emotional appeal and connection to a property can hold significant influence on a tenant’s perceived value of the property. Somewhere that aligns with the tenant’s ideas of home, safety, and comfort can increase the desirability. Employing storytelling can capture the attention of tenants, while also building trust and helping paint a picture of a property that resonates with their needs.
An understanding of the area and prospective tenants is key to employing this method. Perhaps you are selling to someone who is looking to start a family – a common response would be to delve into the educational facilities of the area or perhaps the public transport, but why not delve into the less surface level parts of family life? Is there a beautiful nature reserve or park in the area to take a child or pet? Could you see yourself making memories with your family in this area? Was the previous tenant a family and if so, how did they find their time in the area? By appealing to these factors, you can encourage a potential tenant to foster an emotional attachment to the property before they are even in the door. This in turn would increase their perceived value of the property.
The psychology of rental pricing is a nuanced interplay of cognitive biases, emotional connections, and market dynamics. By mastering these psychological principles, landlords can not only attract the right tenants but also influence their perception of the value of the property, ultimately leading to successful and profitable rental outcomes.