Brokers' Misalignment of Interest
The most noteworthy point in last weekend’s article on foregoing real estate agents was a parenthetical one about the disincentive that brokers have to hold out for top dollar on a sale: Note, however, that agents don’t always push for the best price. Steven D. Levitt, co-author of “Freakonomics,” and Chad Syverson, both University of…
The most noteworthy point in last weekend’s article on foregoing real estate agents was a parenthetical one about the disincentive that brokers have to hold out for top dollar on a sale:
Note, however, that agents don’t always push for the best price. Steven D. Levitt, co-author of “Freakonomics,” and Chad Syverson, both University of Chicago economists, found that real estate agents have an incentive to persuade their clients to sell their houses too cheaply and too quickly because a few thousand dollars more in price won’t yield them a significantly higher commission.
We completely agree. One way to diminish that tendency would be to have several brokers who want your listing to submit their “bids” for what price they think they can sell it for. Then create a sliding commission scale (with quite a steep rate slope) based on how close they come to achieving that price. This would encourage brokers not to throw out inflated numbers in hopes of winning a listing–and would align their interests better with the seller. Do you think that could work?
The 6 Percent Solution [NY Times]
I think an ad runs around $250, if you have a banner (OPEN HOUSE) and if it’s a few lines long. That’s for a Sunday. Online is about half that for 14 days. I’ve done both and found the vast majority of people still rely on the standard printed page.
Eco,
It’s certainly the seller’s option to say no to an offer. Problem is, sellers rely on their brokers’ expertise to tell them what they can realistically hold out for. If you can’t trust them to apply their expertise in your best interests, why use a broker?
Also, very smart not to tell the broker what you’ll settle for.
In what is often an unusually closely correlated field to real estate, a sliding scale commission is often used in sales of high-end (say, 6 figure plus) fine art. However, it can work as a positive incentive, as well, with bonuses for getting over market value, or whatever an agreed-upon level is.
This is why I think – in a warm to hot market at least – selling yourself makes the most sense. All you should need is a website, a craigslist link and a Times ad. Why would you pay 2 or 3% to those FSBO websites mentioned in the article
I also think Barbara Corcoan was right when she said pricing 10% below market gets you a bidding war and nets the highest sale price.
I’ve bought two places through a well-known PS broker who tends to get their clients to settle for less than ideal prices. But, likewise, I would never sell through them, at least not on an exclusive basis.
A certain well known broker specializing in CH and FG sold our place to us and made it very clear what the seller would settle for. Good for us, but I’d never sell through him after that.
The broker’s conflict only comes into play if you agree to accept a lower offer than you want. You can always say no to a low offer and hold out for more. Most people don’t have the guts to that, which is why the brokers get away with it.
When I sold my place recently I pushed the broker to list it at a higher price than I knew I could get. I didn’t tell her the minimum I would accept. This way when I got the amount I wanted, the purchaser was happy to get a discount, and there was less conflict of interest for the broker.
The sliding scale is a standard practice in many other sales fields. For instance, in my industry (software) a rep may get 5% on the first 40% of quota, 6% on the next 20%, etc. on up to 10-15% of anything sold over quota. The real money is made when you overacheive, an extra $100k can yeild $15k in their pocket.
It’s surprising that RE firms haven’t come up with this already and pitched it to their clients. It offers everyone the opportunity to make more money.
Great minds think alike.
My experience has been that there really is no further incentive once the asking price has been reached. The broker wants to make the sale – period.
If I were selling, that is EXACTLY how I would structure the broker contract. In this market, where decent properties sell themselves, there is not reason anyone should accept a standard flat percentage contract.