Cracking the Real Estate Code


Summary

Understand a real estate agent's motivations to maximize personal return. The motivations are (1) sell houses (2) fast. An extra 2% on the sale price of the house does not significantly impact the agent's 6% commission.

Suggestions

Excerpts

In any transaction, it's common for one party to have better information than the other. In the parlance of economists, this is information asymmetry. There's value in asymmetry; it's the reason why someone, such as a consumer, will pay someone else, an expert, for his knowledge.

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, and the seller's agent kept telling me what a good deal I was getting because the market was about to zoom. As soon as I signed the purchase contract, 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.'"

A phrase like "well maintained," for instance, is full of meaning to an agent - the house is old but not quite falling down. A savvy buyer will know this (or find out once he sees the place), but to the retiree who is selling the house, "well maintained" might sound like a compliment, which is just what the agent intends.


original: Freakonomics: A Rogue Economist Explores the Hidden Side of Everything
source: Wired
date: 05/12/2005