Like a stockbroker churning commissions, she wants to make deals and make them fast. When she sells her own house, an agent holds out for the best offer when she sells yours, she pushes you to take the first decent offer that comes along. Using the information from those 100,000 Chicago homes, and controlling for any number of variables - location, age and quality of the house, aesthetics, and so on - it turns out an agent keeps her own home on the market an average of 10 days longer and sells it for an extra 3-plus percent, or $10,000 on a $300,000 house. There's one way to find out: measure the difference between the sales data for houses that belong to real estate agents themselves and the houses they sold on behalf of clients. Is the agent willing to put out all that extra time and energy for just $150? So maybe your incentives aren't aligned after all.
Yet the agent's additional share - her personal 1.5 percent - is a mere $150. But what if the house was worth more than $300,000? What if, with a little more effort and patience, she could have sold it for $310,000? After the commission, that puts an additional $9,400 in your pocket. So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500. Which means that only 1.5 percent of the purchase price goes directly into your agent's pocket. Each agent then kicks back half of her take to her agency. First of all, a 6 percent commission is typically split between the seller's agent and the buyer's.
But commissions aren't as simple as they seem. And so your incentive and the agent's incentive would seem to be nicely aligned. Presumably, this is also her incentive when selling your home after all, her commission is based on the sale price. Recent data covering the sale of nearly 100,000 houses in suburban Chicago show that more than 3,000 of those houses were owned by agents.īefore plunging into the data, a question: What is the agent's incentive when selling her own home? Simple: to make the best deal possible. Real estate provides the perfect opportunity, since housing sales are a matter of public record, and real estate agents often do sell their own homes. The best way to observe information asymmetry at work is to measure how an expert treats you versus how he performs the same service for himself.
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