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Freakonomics - Real Estate Agents Wait for Better Offer on Own Homes

Is your real estate agent really trying to help you? Is your agent getting you the best price? This story from Freakonomics about how real estate agents waiting a bit longer to sell their own homes is pretty clever, right.

So, make sure your real estate agent is working for you and not trying to push you to sell your investment property or buy an investment property too quickly - stick to your investing plan and get a second opinion from someone you trust before you make that final call on whether you buy or sell.

“The study found that an agent keeps her own house on the market an average ten extra days, waiting for a better offer, and sells it for over 3 percent more than your house—or $10,000 on the sale of a $300,000 house. That’s $10,000 going into her pocket that does not go into yours, a nifty profit produced by the abuse of information and a keen understanding of incentives. The problem is that the agent only stands to personally gain an additional $150 by selling your house for $10,000 more, which isn’t much reward for a lot of extra work. So her job is to convince you that a $300,000 offer is in fact a very good offer, even a generous one, and that only a fool would refuse it.”

Here is the agent’s main weapon: the conversion of information into fear. Consider this true story, related by John Donohue, a law professor who in 2001 was teaching at Stanford University: “I was just about to buy a house on the Stanford campus,” he recalls, “and the seller’s agent kept selling me what a good deal I was getting because the market was about to zoom. As soon as I signed the purchase contact, he asked me if I would need an agent to sell my previous Stanford house. I told him that I would probably try to sell without an agent, and he replied, “John, that might work under normal conditions, but with the market tanking now, you really need the help of a broker.”

Within five minutes, a zooming market had tanked. Such are the marvels that can be conjured by an agent in search of the next deal.

Don't forget that statistics and numbers can always be turned around or at least looked at another way to the advantage of the person doing the selling. Maybe the real estate agent is doing their best and not settling for the lower price for a personal gain but just saving money by not waiting for an offer that might not come. What is the general real estate market like? How long is it taking to sell houses in your area?

I really liked the book Freakonomics, it makes you look at things differently, it makes you think about the incentives that drive people, and usually those incentives involve, of course, money. And usually those incentives make people do things that are to their own benefit - which is somewhat understandable.

To benefit, to get more money, there’s a lot of information asymmetry going on.

But for the most part, with the explosion of the Internet the information asymmetry has been disrupted by the access to home prices and homes sales to the average person – information that was once only part of the real estate brokers or agents realm. The real estate experts can’t so easily sway people by withholding information, whether intentionally or not, there’s must more access to information for all. You just have to do the work and find it.

 

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