Wednesday, August 22, 2007

Freakonomics vs. The Real Estate Agent

Once again my reading or should I say listening to books on cd's is creeping in to my thoughts. This time the book I'm reading is making some interesting comments about the true motivations of real estate agents. The book is also doing a pretty good job of backing up their statements. The question they asked was is a real estate agent truly motivated to get the highest dollar possible when selling a clients home. The conclusion they drew was no. Here is what they did, they took a very large number of homes being sold by real estate agents and compared them to a large number of homes being sold by agents as their own homes. The observations they made were that the homes the agents were selling for themselves took longer to market and sold for 10% more. They then used a $300,000 sales price as an example to go on and explain that the motivation for an agent who will make another $150 dollars if that property sells for $310,000 is not very great compared to the agent selling their own home and pocketing another $10,000. Interesting listening and reading. If you are a real estate agent feeling picked on right now, don't worry they pick on a lot of other professionals. I would really recommend reading this book, Freakonomics.


Stephen Downarowicz said...

Hello Greg,

There's a simple explaination as to why RE agents sell their own properties for 10% higher. That analysis is based on list price to sold price. As you know, most sellers want more than their current property value when selling, so they find an agent who will list it too high. Invariably it sells for a greater percentage less than list. Agents better uderstand the market and valuse and price their own homes musch closer to actual market value, so they sell for much closer to asking price. Freakonomics of course tweaks the stats to says what they want them to say to sell books. In this case, that RE agents do not have your best interest in mind. You could just as easily comt to the conlusion that most home sellers ar too greedy. Some how that one seems to ring much truer.

Greg Knowles said...

Excellent Point Stephen, that is hard to argue with and it takes the perspective of a realtor to be able to point that out, thanks for contributing.