4 ms·
The incentives are also very messed up, because of the way commission is paid. Freakonomics [1] famously covered this: Commission is typically 6%, which is spl
by gregmac 8y ago
The incentives are also very messed up, because of the way commission is paid. Freakonomics [1] famously covered this:
Commission is typically 6%, which is split 4 ways to the buying agent, their agency, the selling agent and their agency. So your agent personally takes home 1.5% of the selling price -- on a $300,000 sale, they are making $4,500.
The difference between selling your house for $300,000 and $310,000 after commission is $9,400 in your pocket -- and a paltry $150 for the agent. Are they going to take the risk of leaving it on the market for an extra week (and spending more time showing it, etc) hoping to make an extra $150? Of course not. (Spoiler alert for the book: unless it's their own home, in which case they leave it on the market for an extra 10 days and sell for an extra 3% on average).
Another incentive problem exists on the buy-side: your agent gets paid more money the more you pay for the house. It's literally working against their interest to negotiate a lower price, other than when it's above your absolute maximum.
[1] http://freakonomics.com/books/#freakonomics http://freakonomics.com/books/#freakonomics
- tomohawk 8y agoThis is why, when selling, its better to use a la cart brokers. You pay a set fee to MLS your place, and set fees for other things. You still need to pay a commission to the buyer broker/agent, otherwise they won't show your place. So, 2.5% or 3%. Traditionally, the commission paid was 5% (split 4 ways), but some markets that got as high as 7%. I once had an agent explain to me (who was bad at math) that this was due to inflation.
- lotsofpulp 8y agoYeah, I’ve had supposedly educated people try to tell me they tip 20%+ for standard waiter service instead of 15% due to inflation. Some work in finance. And sometimes on tip on the tax too. Crazy times we live in.
- lsiebert 8y agoThe real value of wages for waiters has decreased significantly because of inflation. Though that's not really inflation's fault as much as a lack of meaningful wage increases.
- deleted 8y ago[deleted]
- jacobolus 8y agoIf your buddies work in finance, they should tip as much as they want (50%? Why not?). The poor restaurant workers need the money a whole lot more than they do. The financial services industry has been skimming gajillions of dollars off the whole economy. Might as well pay at least some of it back to folks doing honest work.
- kemiller 8y agoIt’s more like the general cost of living, especially housing, has risen faster than the price of a restaurant meal.
- jrochkind1 8y agoAnd as a buyer's agent, they make more money the _more_ you pay for the house you are buying, where of course you'd rather pay as little as you can get it for. Even if the amount more they'll be making is trivial, it ends up being the same as the seller's agent problem in reverse. At best their incentives are to not care how much you pay, but want you to buy a house already without them showing you more. At worst, they actually want you to pay more.
- Latteland 8y agoThat is so important, you lose they win. I never thought of it this way. So many poor incentives.