April 8, 2006

Wired 13.05: Cracking the Real Estate Code

Posted in web notes at 7:39 am by Jon Symons

"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. 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. 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.
Before plunging into the data, a question: What is the agent's incentive when selling her own home? Simple: to make the best deal possible. Presumably, this is also her incentive when selling your home; after all, her commission is based on the sale price. And so your incentive and the agent's incentive would seem to be nicely aligned. But commissions aren't as simple as they seem. First of all, a 6 percent commission is typically split between the seller's agent and the buyer's. Each agent then kicks back half of her take to her agency. Which means that only 1.5 percent of the purchase price goes directly into your agent's pocket."

An interesting article about the business of being a real estate agent.


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