Design a better incentive structure for real estate agents

[Musicat]

@nicky

And: Buying Agents? WTF do they do for their money?

Find properties to buy; provide comps to the buyer and advice on offering price and terms; negotiate with the seller to get a better price for the buyer; assist in obtaining a loan; represent the buyer in deciding how to write a purchase offer, what pitfalls to avoid and what procedures are necessary; arrange for title insurance; explain the options available and the legal requirements like mandatory tests or inspections…

Yep, they work hard for the money.

[brickbacon]

@Tabby_Cat

Empirically, we know that the agent knows what the maximum price is because when the agent is selling their own house, they get a higher price than if they were selling someone else’s house.

No. We know they supposedly get higher prices. That doesn’t mean they get a theoretical maximum price, nor that the reason for them getting a higher price is due to their misaligned incentives.

@Tabby_Cat

Now, while I agree that agents are also incentivised to sell early (and low) because of competition with other agents, in the end it is the owner who decides whether to sell or not.

I am not sure they are incentivized to sell low. Many realtors rely on repeat business and reputation. Initially, proposed selling prices should be bid UP due to competition with other agents in securing the contract. Once offers come in, convincing a client to accept a much lower offer is tacitly admitting you mispriced the home. That hurts more realtors in the long run.

@Tabby_Cat

If the owner knows what the maximum price is, they would more often decide to hold out for a higher price (assuming some owners want to sell quicker rather than holding out), similar to how an agent would hold out for the agent’s own house.

But you are assuming the circumstances of sales are similar when they are not in all likelihood. Think about why most people move. In my experience, it’s downsizing/upsizing, new jobs/better commute, or better investment potential. While realtors are subject to all of that, I suspect that few leave an area entirely as that would destroy their business, and that they likely have fewer constraints forcing a move.

@Tabby_Cat

In the real world now, we see that owners are settling for less than the agents would if the agent were in the owners shoes.

Yes, but we don’t know why. There are tons of logical, fairly innocuous reasons this should be the case aside from a principal-agent problem. I think that is a common diagnosis that is often inaccurate. One popular market we can see this doesn’t seem to be an issue is sports, specifically baseball. Players rarely settle for the first offer, and they commonly go to where the best offer is even if it means exercising opt-out clauses and the like.