4 ms·

My wife's a Realtor, so I have some insight into this. One aspect you're missing is the value of reputation, referrals, and repeat business. Going the extra mil

My wife's a Realtor, so I have some insight into this. One aspect you're missing is the value of reputation, referrals, and repeat business. Going the extra mile for her clients to get them the best deal possible (which, sometimes, happens to be the offer-in-hand) has long-term consequences for getting future business. That's worth a lot more than the extra $300. Also, "selling additional houses" isn't as easy as it sounds. There's a lot of unpaid effort involved in acquiring clients and getting to an offer, before any of the negotiation starts. Time spent negotiating and baby-sitting an existing offer at least has a high likely-hood of being paid time.

kylebgorman 14y ago
The post above is not saying that realtors are evil or useless, just that the standard commission schema means that a realtor's payoffs/incentives are quite different than the owner who hires the realtor.
- DougWebb 14y ago
  That's pretty much always the case when one person hires another person to do something. The hire-er wants to get as much work done for as little money as possible, and the hire-ee wants to get as much money as possible for each unit of work. They're polar opposites, yet this arrangement happens all of the time. The problem with having different incentives is when one party doesn't recognize that there is a mis-alignment. If you're selling your home and you don't realize that your Realtor's time is not an endless, worthless resource at your disposal, then you may be inclined to insist on your Realtor spending endless hours of aggressive negotiation, potentially putting the offer at risk of closing at all, for an amount of additional money to you that's not really going to make much of a difference to you. (My wife's been involved in deals where one party or the other has risked a deal that's been in the works for 2-3 months over less than 0.1% of the house's value.)
  - philh 14y ago
    0.1% of a house's value seems like a fair amount of money. I doubt it would seem strange to put a lot of effort into getting that much money, if it was framed differently. Admittedly, not spending 2-3 months to work out another deal is worth quite a lot of money as well. But this behaviour doesn't seem obviously irrational.
    - bartonfink 14y ago
      0.1% of a house's value is almost certainly not an appreciable amount of money. It's so low that, if the parties could not find a way to come to terms over it, the agents may swallow it themselves just to get the deal done. For a half-million dollar home, which would be a relatively nice house for most of the country, you're talking about $500. For any party on that transaction (buyer, seller or their respective agents who each stand to make $15k on a normal 3% commission), that's not a lot of money and is almost certainly not worth arguing over if you're in all but the earliest stages of negotiation.
fecak 14y ago
Reputation and referrals are my lifeblood. I have been giving things away for 15 years - mostly information, insight, tips, etc. I have contacts who ask me for career advice all the time, even when not looking for jobs, and I always take the call and try to provide honest advice. When those people are asked who to use for search, they send business my way. I now do very little marketing to new clients or candidates - I post some jobs on my site, but very little advertising and very few cold calls. The value of acquiring a set of very specific and useful information (market rates, info on companies, etc.) and providing that to your network when asked is rewarded down the road.
- beeffective 14y ago
  Edit: Sorry I just noticed you are the original poster.
jeremyjh 14y ago
So are you saying that realtors don't on average keep their own houses on the market 10 days longer than they keep client houses? We don't need to fully understand the incentives to know they are different if we know the outcomes are different.
- pacaro 14y ago
  I'd love to know what the distribution of this is. If you pick a realtor at random it appears to be "worse" than not using a realtor, but what is the variance? I suspect that a good realtor is probably going to get you a better price, I'm pretty certain that a bad one won't! When I bought my current property the seller used a listing only service and pretty much screwed up every part of the transaction that was possible to screw up (missed deadlines, filed the wrong papers, failed to show up for closing for 3 days...) - I nearly walked away, in retrospect I should have, this is basic stuff that even a sucky realtor will get right.

kylebgorman 14y ago

The post above is not saying that realtors are evil or useless, just that the standard commission schema means that a realtor's payoffs/incentives are quite different than the owner who hires the realtor.

DougWebb 14y ago
That's pretty much always the case when one person hires another person to do something. The hire-er wants to get as much work done for as little money as possible, and the hire-ee wants to get as much money as possible for each unit of work. They're polar opposites, yet this arrangement happens all of the time. The problem with having different incentives is when one party doesn't recognize that there is a mis-alignment. If you're selling your home and you don't realize that your Realtor's time is not an endless, worthless resource at your disposal, then you may be inclined to insist on your Realtor spending endless hours of aggressive negotiation, potentially putting the offer at risk of closing at all, for an amount of additional money to you that's not really going to make much of a difference to you. (My wife's been involved in deals where one party or the other has risked a deal that's been in the works for 2-3 months over less than 0.1% of the house's value.)
- philh 14y ago
  0.1% of a house's value seems like a fair amount of money. I doubt it would seem strange to put a lot of effort into getting that much money, if it was framed differently. Admittedly, not spending 2-3 months to work out another deal is worth quite a lot of money as well. But this behaviour doesn't seem obviously irrational.
  - bartonfink 14y ago
    0.1% of a house's value is almost certainly not an appreciable amount of money. It's so low that, if the parties could not find a way to come to terms over it, the agents may swallow it themselves just to get the deal done. For a half-million dollar home, which would be a relatively nice house for most of the country, you're talking about $500. For any party on that transaction (buyer, seller or their respective agents who each stand to make $15k on a normal 3% commission), that's not a lot of money and is almost certainly not worth arguing over if you're in all but the earliest stages of negotiation.

fecak 14y ago

Reputation and referrals are my lifeblood. I have been giving things away for 15 years - mostly information, insight, tips, etc. I have contacts who ask me for career advice all the time, even when not looking for jobs, and I always take the call and try to provide honest advice. When those people are asked who to use for search, they send business my way. I now do very little marketing to new clients or candidates - I post some jobs on my site, but very little advertising and very few cold calls. The value of acquiring a set of very specific and useful information (market rates, info on companies, etc.) and providing that to your network when asked is rewarded down the road.

beeffective 14y ago
Edit: Sorry I just noticed you are the original poster.

jeremyjh 14y ago

So are you saying that realtors don't on average keep their own houses on the market 10 days longer than they keep client houses? We don't need to fully understand the incentives to know they are different if we know the outcomes are different.

pacaro 14y ago
I'd love to know what the distribution of this is. If you pick a realtor at random it appears to be "worse" than not using a realtor, but what is the variance? I suspect that a good realtor is probably going to get you a better price, I'm pretty certain that a bad one won't! When I bought my current property the seller used a listing only service and pretty much screwed up every part of the transaction that was possible to screw up (missed deadlines, filed the wrong papers, failed to show up for closing for 3 days...) - I nearly walked away, in retrospect I should have, this is basic stuff that even a sucky realtor will get right.