I’ve been reading another interesting book called Freakonomics over the last week which is filled with lots of facts and great explanations behind them. In my next article I’ll even write about another real estate related metric I found in the book. But for now, heres today’s tidbit:
Real estate agents keep their own properties on the market an average of 10 days longer and sell them for an extra 3+%. To quote the book, on a house of $300,000, that means they sell it for an extra $10,000.
Freakonomics goes into more details as to the cause, and it’s nothing negative against the real estate agent. It’s simply all about incentives, and it makes perfect sense once you understand the facts. So let’s take a quick look.
Looking at that same $300,000 property again, after breaking up the commission, etc., the real estate agent’s average take is $4,500, or about 1.5% of the total purchase price. Now if we take a $310,000 property (adding the $10,000 difference), the real estate agent’s additional 1.5% revenue on $10,000 comes to a total of $150. Therefore the question is, is it worth it for the real estate agent to work an 10 additional days (have more showings, consume a lot of time, take away time from selling other properties, etc.) for $150? I agree with the author, probably not, the incentive just isn’t there. Would you work an additional 10 days for $150? (yes I understand that it’s not 8 hours a day for 10 days, but it still does eat up a lot of time over those 10 days). Now if you change that $150 difference to $10,000, then again I agree with the author, there is substantially more incentive there.
So although the statistics clearly show that the incentives are higher for a real estate agent to sell their own properties, can you blame them? I can’t. Is there a better way to align both your incentives? Probably but I’m not sure how. If you think you do, feel free to comment.