A real-estate agent keeps her own home on the market an average of ten days longer [than she would for a client] and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house. When she sells her own house, an agent holds out for the best offer; when she sells yours, she encourages you to take the first decent offer that comes along. (
2. Why do think commission model is unfair...do you give 15% gratitude when you dine out or even more for great service.
3..Why do think discount broker are discriminated against by other brokerages? (Could be many reasons but any buyer broker should show any property that a great fit for their client)
4.Ask yourself this what would attorney charge for case that's contingency base?
5. If you don't like the % commission model that's only paid when closes would you prefer $75/hr graphic arts fee, $25/hr admin fee, $150/hr marketing preparation/ staying fees, $300/hr negotioaton, offer, contract, review, inspection contingency and finciancial contingcy removal fee, pay/reimburse all expense incurred by marketing the property in Internet, Mls fees (if applicable) post card mailing, flyers,etc all first applied to retainer fee than billed weekly.I am interested in the responses here because curious what you as consumer thinks.
I will end on this note: go with the agent that's consultative, demonstrates neighborhood/market knowledge, networker / relationship builder in your community whether that's rapport with coop agents, business or other residents. Because at the end of the day that what you paying for guidance and the agents network in that area when or if the transaction closes.
It simply takes more than putting on the Mls and wait to see. Of course not all agents are created equal but think of their role as small company that has marketing department, sales department, customer service department, public/community relations department, admin department, legal department, and it department with all services essential preformed on free model until tour home closes.
This is an interesting proposed solution to a worrying problem. Most of us sell few houses in our lifetime and have to put our trust in the estate agents. Fortunately, the process is different in the UK - and we don't often use buying agents - but it illustrates that we need to choose agents carefully. Talk to your agent, ask their opinion and why they take a certain approach and, if they don't explain themselves to your satisfaction, challenge them.
That's far more complex a plan than is needed. I told my buyer's agent that instead of his commission of 3%, I'd pay him selling price * .03 * (2 - selling price/asking price) . This was when selling price was always lower than asking price.
He said it was too hard and probably illegal for him to structure a deal that way.
From the practitioner's perspective, this is entirely unworkable. Even if it could be implemented cost-effectively, the solution is much too complicated to explain to most homeowners. A slightly better solution might be to pay on a sliding scale relative to the over/under against some consensus (crowd-determined?) expected sale price. An even more interesting solution is to eliminate the commission entirely, and simply pay for the professional services rendered according to some other agreed upon pricing.
Thanks for sharing this alternative possible explanation. I don't know whether it's correct, or even whether the original investigators considered this. But I now realize that I did not think carefully enough about possible alternative explanations such as this.
The way I see it there's something bigger going on here.
But, we've got some "rationalists" here: and what is a libertarian but an extreme economic rationalist? The rationalists will figure out the "optimal" remuneration scheme and compel their (successive) real-estate agents to accept it, alienating each so the house is never sold. Then they dissect the experience on Less Wrong.
In 2008 an agent was trying to get me to sign with him to rep me as a buyer. He wanted me to make him my exclusive buyer's rep. He sent me his contract, which was rife with conflicts. So I edited it and sent it back to him. He decided not sign the one I provided. For your consideration: https://docs.google.com/doc...
arch1 put it down to simple maths: "It's because selling agent's expected $/hr to increase selling price beyond owner's basement price is LESS than the expected $/hr of declaring victory and moving ahead on other prospective (basement-price) sales ."
In numbers: if I have to do extra work to squeeze a final $10,000 out of a $300,000 sale, I have made $10,000 if it's my own house and $300 if it's a client's house (assuming a 3% commission). The incentive of working for yourself is _always_ higher than that of working for someone else, no matter how you change the system.
In general, the value of a property can't really be determined to within more than 5%. I wonder what variance came with that 3% gain. Even 10 days would cost $1000 to carry two properties.
"In the contracts I was parenthetically describing, the agent would get up to the first, say, $10,000 of the house's final sales price and the homeowner gets anything above that."
I thought you meant the opposite. That the homeowner would get up to the first, say, $100,000 of the house's final sales price and the agent gets anything above that.
Why would the contract you give every be good?
"Since every marginal dollar of the home's final sale price goes to the agent, there are no incentive issues, but the homeworker captures none of those gains."
He captures them when hiring the agent. He just captures none of the uncertainty.
"However, there might be some moral hazard problems when the agent knows the house won't sell for much and any effort he puts in will just goes to the owner."
Really what should be happening is that the agent will have to pay if it goes less than that. Otherwise there's no incentive for an agent not to bid high on the off chance that they can sell it for more than that. The only cost to them is interest.
Check the literature on "Linear Contract Performance". There is some interesting work on this application to real estate from David Sappington and Debashis Pal:
I wonder if the point really is for all of us trying to come up with ways to fix the problem described by Robin. The way I see it there's something bigger going on here. There is the possibility that people on this blog will find a solution, there's a possibility that they will not. In both cases It should have us thinking: if there is a solution we here on the blog can think of, then why hasn't the "invisible hand" of the free market implemented it decades ago, if there is no solution (or an excruciatingly difficult one that no one here can think of in a timely manner), then why is the free market still running with this rotten way of selling homes (surely no government authority forces this method on anyone)? In either case we could conclude that bad practices that screw over many people, even intelligent ones, can continue for decades, at the very least, in a free market. In the end isn't the point that we can think of fancy solutions all we want but that it won't matter in the real world because getting screwed in a free market for an opaque product is inevitable, part of the game?
In the contracts I was parenthetically describing, the agent would get up to the first, say, $10,000 of the house's final sales price and the homeowner gets anything above that. These contracts work well for assets with a currently unknown value that will be eventually realized. Here however, it makes no difference to the agent whether the house sells at $50,000 or $300,000 since he gets only $10,000, so he doesn't want to put in any effort beyond covering his cut. At the extreme, the homeowner never gets any revenue since the house sells exactly for the agent's cut.
In a cash auction, the homeowner is guaranteed the agent's bid. Since every marginal dollar of the home's final sale price goes to the agent, there are no incentive issues, but the homeworker captures none of those gains.
In an auction with limited liability, where the homeowner gets up to the bid of the agent and the agent gets everything above that, agents will bid more than in the cash auction since they never have to pay out of pocket. However, there might be some moral hazard problems when the agent knows the house won't sell for much and any effort he puts in will just goes to the owner. Switching from a cash to limited liability contract generates more revenue through the auction, but less due to moral hazard. The two formats aren't going to be equivalent unless the effects cancel out exactly.
Really? REALLY??
I think you have interesting post but...
1. Are you in the us or some other country.
2. Why do think commission model is unfair...do you give 15% gratitude when you dine out or even more for great service.
3..Why do think discount broker are discriminated against by other brokerages? (Could be many reasons but any buyer broker should show any property that a great fit for their client)
4.Ask yourself this what would attorney charge for case that's contingency base?
5. If you don't like the % commission model that's only paid when closes would you prefer $75/hr graphic arts fee, $25/hr admin fee, $150/hr marketing preparation/ staying fees, $300/hr negotioaton, offer, contract, review, inspection contingency and finciancial contingcy removal fee, pay/reimburse all expense incurred by marketing the property in Internet, Mls fees (if applicable) post card mailing, flyers,etc all first applied to retainer fee than billed weekly.I am interested in the responses here because curious what you as consumer thinks.
I will end on this note: go with the agent that's consultative, demonstrates neighborhood/market knowledge, networker / relationship builder in your community whether that's rapport with coop agents, business or other residents. Because at the end of the day that what you paying for guidance and the agents network in that area when or if the transaction closes.
It simply takes more than putting on the Mls and wait to see. Of course not all agents are created equal but think of their role as small company that has marketing department, sales department, customer service department, public/community relations department, admin department, legal department, and it department with all services essential preformed on free model until tour home closes.
f
This is an interesting proposed solution to a worrying problem. Most of us sell few houses in our lifetime and have to put our trust in the estate agents. Fortunately, the process is different in the UK - and we don't often use buying agents - but it illustrates that we need to choose agents carefully. Talk to your agent, ask their opinion and why they take a certain approach and, if they don't explain themselves to your satisfaction, challenge them.
That's far more complex a plan than is needed. I told my buyer's agent that instead of his commission of 3%, I'd pay him selling price * .03 * (2 - selling price/asking price) . This was when selling price was always lower than asking price.
He said it was too hard and probably illegal for him to structure a deal that way.
From the practitioner's perspective, this is entirely unworkable. Even if it could be implemented cost-effectively, the solution is much too complicated to explain to most homeowners. A slightly better solution might be to pay on a sliding scale relative to the over/under against some consensus (crowd-determined?) expected sale price. An even more interesting solution is to eliminate the commission entirely, and simply pay for the professional services rendered according to some other agreed upon pricing.
Thanks for sharing this alternative possible explanation. I don't know whether it's correct, or even whether the original investigators considered this. But I now realize that I did not think carefully enough about possible alternative explanations such as this.
The way I see it there's something bigger going on here.
But, we've got some "rationalists" here: and what is a libertarian but an extreme economic rationalist? The rationalists will figure out the "optimal" remuneration scheme and compel their (successive) real-estate agents to accept it, alienating each so the house is never sold. Then they dissect the experience on Less Wrong.
In 2008 an agent was trying to get me to sign with him to rep me as a buyer. He wanted me to make him my exclusive buyer's rep. He sent me his contract, which was rife with conflicts. So I edited it and sent it back to him. He decided not sign the one I provided. For your consideration: https://docs.google.com/doc...
arch1 put it down to simple maths: "It's because selling agent's expected $/hr to increase selling price beyond owner's basement price is LESS than the expected $/hr of declaring victory and moving ahead on other prospective (basement-price) sales ."
In numbers: if I have to do extra work to squeeze a final $10,000 out of a $300,000 sale, I have made $10,000 if it's my own house and $300 if it's a client's house (assuming a 3% commission). The incentive of working for yourself is _always_ higher than that of working for someone else, no matter how you change the system.
I was giving the agent the benefit of the doubt right up until "the market has a way of eliminating those who are just in it for the money."
In general, the value of a property can't really be determined to within more than 5%. I wonder what variance came with that 3% gain. Even 10 days would cost $1000 to carry two properties.
"In the contracts I was parenthetically describing, the agent would get up to the first, say, $10,000 of the house's final sales price and the homeowner gets anything above that."
I thought you meant the opposite. That the homeowner would get up to the first, say, $100,000 of the house's final sales price and the agent gets anything above that.
Why would the contract you give every be good?
"Since every marginal dollar of the home's final sale price goes to the agent, there are no incentive issues, but the homeworker captures none of those gains."
He captures them when hiring the agent. He just captures none of the uncertainty.
"However, there might be some moral hazard problems when the agent knows the house won't sell for much and any effort he puts in will just goes to the owner."
Really what should be happening is that the agent will have to pay if it goes less than that. Otherwise there's no incentive for an agent not to bid high on the off chance that they can sell it for more than that. The only cost to them is interest.
Check the literature on "Linear Contract Performance". There is some interesting work on this application to real estate from David Sappington and Debashis Pal:
http://papers.ssrn.com/sol3...
I wonder if the point really is for all of us trying to come up with ways to fix the problem described by Robin. The way I see it there's something bigger going on here. There is the possibility that people on this blog will find a solution, there's a possibility that they will not. In both cases It should have us thinking: if there is a solution we here on the blog can think of, then why hasn't the "invisible hand" of the free market implemented it decades ago, if there is no solution (or an excruciatingly difficult one that no one here can think of in a timely manner), then why is the free market still running with this rotten way of selling homes (surely no government authority forces this method on anyone)? In either case we could conclude that bad practices that screw over many people, even intelligent ones, can continue for decades, at the very least, in a free market. In the end isn't the point that we can think of fancy solutions all we want but that it won't matter in the real world because getting screwed in a free market for an opaque product is inevitable, part of the game?
That's amusing. My first reaction is "your real estate agent thinks you're stupid", but really it's just classic thinking from non-econblog-readers.
In the contracts I was parenthetically describing, the agent would get up to the first, say, $10,000 of the house's final sales price and the homeowner gets anything above that. These contracts work well for assets with a currently unknown value that will be eventually realized. Here however, it makes no difference to the agent whether the house sells at $50,000 or $300,000 since he gets only $10,000, so he doesn't want to put in any effort beyond covering his cut. At the extreme, the homeowner never gets any revenue since the house sells exactly for the agent's cut.
In a cash auction, the homeowner is guaranteed the agent's bid. Since every marginal dollar of the home's final sale price goes to the agent, there are no incentive issues, but the homeworker captures none of those gains.
In an auction with limited liability, where the homeowner gets up to the bid of the agent and the agent gets everything above that, agents will bid more than in the cash auction since they never have to pay out of pocket. However, there might be some moral hazard problems when the agent knows the house won't sell for much and any effort he puts in will just goes to the owner. Switching from a cash to limited liability contract generates more revenue through the auction, but less due to moral hazard. The two formats aren't going to be equivalent unless the effects cancel out exactly.