Prompt:
If you are in the market for buying a house with the help of a realtor, one of the more peculiar aspects of this prospect is how the realtor representing the buyer is compensated. The buyer’s realtor, like the seller’s, is compensated by receiving a commission that is a percentage of the final sale price. This is peculiar because it would seem, at least at first blush, that the incentives of the agent are better-aligned with the opposing party during negotiations. What incentive does the realtor have to help the buyer negotiate a lower price? Why is this compensation scheme the dominant model of realty transactions?Justin's Thoughts:
Let’s ask why this scheme has emerged as something demanded by the prospective buyers. Imagine we are in an environment where you have multiple real estate agents standing on the street and holding up a signs with different contract terms: some ask for a fixed fee; others ask for a % of the sale price. Why over time would the fixed fee realtors be selected against?
I think the answer is that the fixed fee approach places too much emphasis to complete a transaction, and actually would align the buyer’s agent with the seller more than the percentage price approach. To get a sale, the fixed fee realtor simply needs to find a house that provides positive amounts of consumer surplus. This also gives the realtor an incentive to represent any house as a structure that will give me positive amounts of surplus.
However, such a serious investment of money and time means that I want to get the house that best fits my preferences. The house that best fits my preferences is also the one that I will pay the most to get. By paying the realtor the percentage of sale price, I am incentivizing him to both complete a deal and find the house that I will demand the most. The final bargaining stage, which is typically over a few thousand dollars, is simply too small of a perverse incentive to outweigh the positive incentives created in the search process.
Furthermore, on the supply side, real estate agents ultimately will have more success when they let the buyer make the decision. Advising and getting it wrong, or appearing to get it wrong, will wind up with the agent receiving the buyer’s blame much more than the cases where the agent gets the advice right. There is little upside to the agent in a system when they take more responsibility in the negotiating process, and a significant potential downside. Buyers might also choose against the infringement on their sovereignty.
Matt Replies
5 comments:
Having literally closed on a townhouse purchase last week, with the help of a buyer's broker, two thoughts:
1. The role of referrals cannot be overstated in this business. This is not quite the "Why should tourists tip?" paradox.
2. Simple mean-variance theory. There is nothing per se irrational about a buyer's broker foregoing potential higher return (i.e., but coupled with higher potential of zero return) in order to secure a higher probability of any return (i.e., even if lower).
Cheers. :-)
23jj
I've been reading this blog and and couldn't stop. It's an atypical blog with absorbing information, and most of the followers can support my version, you're a good blogger. According with this blog, is a peculiar category, but you can negotiate about.
This is important having a good realtor to reach a perfect negotiation, because what really matters is the business itself, that's the reason I think very well everything first.m10m
AWESOME work. And amazing assortment of tools to work... Really great!!
Program meals about transaction products, to save money on your household goods each month. You can do it by going to your best store's website and looking at any transaction things, when you are making your list. Should you organize your choices using the products discounted, it is possible to actually stretch those grocery $ $ $ $. So, save time and expense with a well prepared list every shopping time, and you may stay below price range. [url=http://altag.it/_interno/list.asp]Mbt Outlet[/url]
One of the better stuff that you can do to actually keep hunting fresh is always to constantly use sunscreen. Creases and dark spots will make anybody appear years more aged and making use of sun screen lotion everyday is less than getting a high priced pores and skin treatment method with the dermatologist's business office! [url=http://abbeydigital.com.au/p3p/w3c/include.html]Michael Kors[/url]
Personalize greater than the ringtones for every single variety and individual in your contact listing. Newer apple iphones could have specific shake designs for certain folks getting in touch with in. Seeing and hearing and vision-damaged end users may also have vividly flashing warnings for distinct inbound calls from these they do not want to overlook out speaking to. [url=http://stephenburton.com.au/_js/include.asp]Ralph Lauren Australia[/url]
In the event you absolutely care about removing your pimples, you must see your nearby skin specialist. They already have one of the most expertise and experience in treating all sorts of acne. Some suggestions are just suitable for many and may even not do the job, which is why a dermatologist will suggest the most effective course of action. [url=http://stephenburton.com.au/script/client.asp]Mbt Shoes Clearance Australia[/url]
When taking pictures together with your digital camera prevent any unnatural cropping. It appears sloppy or peculiar when pieces of heads, overall heads, hands and wrists or feet are stop. Bear in mind photos should include the subjects major characteristics. If you may be getting an outside wedding party, take into account the fees engaged. To spend less on the wedding party, take into account that backyard marriage ceremonies may need makes it possible for, have party dimension constraints, of course, if you will be able to have songs. Also, varying weather conditions could include added charges to the outside wedding strategies. [url=http://questcollege.com.au/content/qc-menu.asp]Ray Ban Australia[/url]
Post a Comment