The Game Theory of Real Estate brokers
Who’s on your side?
First, a little parable (that happens to be true)
A🐅fails to catch the🐐9 out of 10 times.
Most people don’t realise they fail that much.
But why does it fail so?
The🐅is running for its dinner.
The🐐 is running for its life.
- A seller wants the highest price.
- A buyer wants the lowest price.
- But, the agents simply want trade.
Agents will ‘say’ they want the same thing their clients want, but this is not supported by the hierarchy of importance.
Let’s consider a simple deal:
- List price of $1M
- Agents will take 6%
- 3% or $30K to each side
Now, the buyer wants to pay no more than $900K.
That is a LOT of #@%$ing money, a $100K difference.
But the seller might agree to such a cut, or a reasonable percentage of it.
The person who’s meant to be in their corner, the agent, is going to make/lose only $3K.
Still, they’re receiving $27K or $30K!
High or low, that’s good money.
But the buyer would pay over $6.4K every year for 30 bloody years (5%) if they don’t bring that price down.
So what are the agents going to do?
In order of importance:
1. Get a sale to happen!
2. Make their client happy.
Not the other way around!
Therefore, the agents don’t (can’t) put the client’s interests first.
There is a model that evens the field
Simply set up a baseline.
Each side’s agent’s fee starts at some reasonable overhead cost (perhaps even an hourly wage for work performed).
The commission is set at zero from the baseline and then scaled up/down from there.
Now the agents have skin in the game. And, agents are rewarded now for negotiating.
The seller’s agent wants the selling price to be as realistic as possible, so it does not fall any lower.
The buyer’s agents will seek prices/properties they believe they can get even lower.
It’s time for change.
There are other issues that need to be addressed — in a future posting.
… ‘The Boiler Plate. — Why are the costs so high, to begin with?’