5 ms·

Why would you use a real estate agent trying to pump the price as high as possible I was surprised to read this, since I thought you'd hinted at exactly the op

Why would you use a real estate agent trying to pump the price as high as possible I was surprised to read this, since I thought you'd hinted at exactly the opposite by mentioning Freakonomics. Isn't the Freakonomics argument that an agent is incentivized to instead sell the property as quickly as possible, regardless of the sale price? For instance, accepting an offer that is $10k under the listing price will cost the seller $9,400 ($10,000 * 94%), but will only cost the selling agent $150 (1.5% * $10,000). If the agent's time is worth almost anything approaching a respectable hourly rate for a sales professional, then they should pressure the seller to take the lower offer, as not doing so would likely incur significant time costs (well over $150 worth of their time) for the listing agent. Is that view of things mistaken?

ssharp 12y ago
Yes, that was the argument in Freakonomics and they're completely right. The real estate market can be extremely receptive to low prices, so if you list your house very low, you're likely to sell it much faster. The bulk of the money the agents make will come from the part of the house that could sell very easily. If a house could sell for $200,000 today, but you have to have it listed six months before it could sell for $220,000 (which is unknown at the time, of course). The seller agent is going to make $6,000 of the $200k sale (3%) but will only make $600 more from selling it for an extra $20,000. And a lot of the time that 3% number is high. If they aren't a broker, they're splitting that 3% with someone else, so maybe the extra $20k sale price only nets them an extra $300 in their pocket. When I was selling my house a few years ago, I talked with one agent that was recommended to me and he was so blatantly obvious in his desire to get commissions that I couldn't believe the people who recommended him failed to see that. He came in, refused to list the house for less than a 6% split (this is negotiable, 5% isn't uncommon at all) and wanted to LIST the house for around $8,000 less than what I actually sold it for a few months later. It wasn't that big of a house and was in an area with very affordable housing, so that extra $8,000 was high enough of a total % to make a huge difference. Also, I'd venture that many people selling their houses still have a mortgage on the house, so the huge base commission the seller agent makes isn't even coming off of the owner's profit, it's coming of the amount they need to pay back the note.
- kbenson 12y ago
  Depending on the market, a lower list price can work out really well. If demand is high and supply us low, a low list price and not accepting (or at least responding to) offers until after a specific date can result in a bidding war increasing the price 5-10%, as you've increased your exposure. This tactic has been used to great effect over the last few years in the area North of San Francisco. I bought a house a year ago, and this was particularly annoying as it made it hard to determine what houses were really available in our price range, since listed prices were often fictional. Brokers suggested coming in $5k to $15k above listed price as an initial bid if others seemed interested, just so you would be taken seriously. Edit: s/$15k to $15k/$5k to $15k/
  - ssharp 12y ago
    My experience has not been in "hot" real estate markets, so I've never experienced the low listing price as a tactic other than trying to sell a house faster. Most houses in my direct area sit around for at least several months, if not several years. I'm sure other areas are substantially different.
- mooreds 12y ago
  There are good agents and bad agents, just like good and bad folks in any profession. (Actually, because the barriers to entry are so low, there are probably more bad real estate agents.) See my comment below about LTV--if a consumer feels they aren't being treated well, the agent might make a bit more on this sale, but lose five figures of income later. Just like that agent that you interacted with. Now, if you feel like the consumer isn't educated enough to know they are being treated with care, well, that's a different discussion entirely.
  - ssharp 12y ago
    A lot will depend on the situation as well. Maybe you're willing to take less money to sell the house faster. Getting a very aggressive agent would be a good option then. Like with most things, you're best bet is to do the research and gather several options. When I was selling my house, I spoke with three or four agents and ultimately chose a flat-fee MLS service.
bzbarsky 12y ago
chatmasta is talking about the _buyer's_ agent. In the US real estate market, the buyer's agent is typically paid a percentage of the sale price. So the buyer's agent has an incentive to convince the buyer to pay a higher price. They of course also have an incentive to convince the buyer to buy quickly, for the reason you said. Oh, also the _seller_ is typically the party that actually pays the buyer's agent. Yes, this is pretty messed up.
- calbear81 12y ago
  When I was buying my house, I considered not using a buyer's agent because the condo seller said that they could handle both ends of the deal and save me some money. I thought about it and read more into it and eventually decided against that because a buyer's agent is legally required to represent your best interests as the buyer whereas the seller is representing the other party. Buyer's agents are required to disclose any information that they come into that may help you in negotiation. Luckily, I found a good agent from a referral and since I found my place myself I was charged half the commission.
  - w4 12y ago
    > I...decided against that because a buyer's agent is legally required to represent your best interests as the buyer whereas the seller is representing the other party This actually depends on if your state's regulations permit dual agency or not; some states, e.g. Massachusetts, permit one agent to represent both parties. Other states, like Florida, forbid it due to the potential conflict of interest. Either way, though, avoiding dual agency is probably a good call. It's fraught with potential problems, and even if the agent cuts perfectly square corners, the quality of representation will still suffer since the agent must keep both parties in mind at all times.

ssharp 12y ago

Yes, that was the argument in Freakonomics and they're completely right. The real estate market can be extremely receptive to low prices, so if you list your house very low, you're likely to sell it much faster. The bulk of the money the agents make will come from the part of the house that could sell very easily. If a house could sell for $200,000 today, but you have to have it listed six months before it could sell for $220,000 (which is unknown at the time, of course). The seller agent is going to make $6,000 of the $200k sale (3%) but will only make $600 more from selling it for an extra $20,000. And a lot of the time that 3% number is high. If they aren't a broker, they're splitting that 3% with someone else, so maybe the extra $20k sale price only nets them an extra $300 in their pocket. When I was selling my house a few years ago, I talked with one agent that was recommended to me and he was so blatantly obvious in his desire to get commissions that I couldn't believe the people who recommended him failed to see that. He came in, refused to list the house for less than a 6% split (this is negotiable, 5% isn't uncommon at all) and wanted to LIST the house for around $8,000 less than what I actually sold it for a few months later. It wasn't that big of a house and was in an area with very affordable housing, so that extra $8,000 was high enough of a total % to make a huge difference. Also, I'd venture that many people selling their houses still have a mortgage on the house, so the huge base commission the seller agent makes isn't even coming off of the owner's profit, it's coming of the amount they need to pay back the note.

kbenson 12y ago
Depending on the market, a lower list price can work out really well. If demand is high and supply us low, a low list price and not accepting (or at least responding to) offers until after a specific date can result in a bidding war increasing the price 5-10%, as you've increased your exposure. This tactic has been used to great effect over the last few years in the area North of San Francisco. I bought a house a year ago, and this was particularly annoying as it made it hard to determine what houses were really available in our price range, since listed prices were often fictional. Brokers suggested coming in $5k to $15k above listed price as an initial bid if others seemed interested, just so you would be taken seriously. Edit: s/$15k to $15k/$5k to $15k/
- ssharp 12y ago
  My experience has not been in "hot" real estate markets, so I've never experienced the low listing price as a tactic other than trying to sell a house faster. Most houses in my direct area sit around for at least several months, if not several years. I'm sure other areas are substantially different.
mooreds 12y ago
There are good agents and bad agents, just like good and bad folks in any profession. (Actually, because the barriers to entry are so low, there are probably more bad real estate agents.) See my comment below about LTV--if a consumer feels they aren't being treated well, the agent might make a bit more on this sale, but lose five figures of income later. Just like that agent that you interacted with. Now, if you feel like the consumer isn't educated enough to know they are being treated with care, well, that's a different discussion entirely.
- ssharp 12y ago
  A lot will depend on the situation as well. Maybe you're willing to take less money to sell the house faster. Getting a very aggressive agent would be a good option then. Like with most things, you're best bet is to do the research and gather several options. When I was selling my house, I spoke with three or four agents and ultimately chose a flat-fee MLS service.

bzbarsky 12y ago

chatmasta is talking about the _buyer's_ agent. In the US real estate market, the buyer's agent is typically paid a percentage of the sale price. So the buyer's agent has an incentive to convince the buyer to pay a higher price. They of course also have an incentive to convince the buyer to buy quickly, for the reason you said. Oh, also the _seller_ is typically the party that actually pays the buyer's agent. Yes, this is pretty messed up.

calbear81 12y ago
When I was buying my house, I considered not using a buyer's agent because the condo seller said that they could handle both ends of the deal and save me some money. I thought about it and read more into it and eventually decided against that because a buyer's agent is legally required to represent your best interests as the buyer whereas the seller is representing the other party. Buyer's agents are required to disclose any information that they come into that may help you in negotiation. Luckily, I found a good agent from a referral and since I found my place myself I was charged half the commission.
- w4 12y ago
  > I...decided against that because a buyer's agent is legally required to represent your best interests as the buyer whereas the seller is representing the other party This actually depends on if your state's regulations permit dual agency or not; some states, e.g. Massachusetts, permit one agent to represent both parties. Other states, like Florida, forbid it due to the potential conflict of interest. Either way, though, avoiding dual agency is probably a good call. It's fraught with potential problems, and even if the agent cuts perfectly square corners, the quality of representation will still suffer since the agent must keep both parties in mind at all times.