In his book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, economists Steven Levitt and Stephen Dubner point out that a real estate agent has the incentive to sell a home quickly, not get the best price for the seller. Consider a home that is listed at $400,000. Assuming that a selling agent nets a 1.25% commission on the house after splitting the commission with the buyer’s agent and his agency and the home sells for the listed price, the agent will earn a commission of $5,000. The seller is left with $380,000 after paying his agent’s commission.
Now, assume that the seller holds out for a higher price of $410,000 or $389,500 net of commissions. The seller has an extra $9,500 on the sale of his home but the agent has just $125 more in commissions. Clearly, the agent’s incentive is to sell the home quickly, not hold out for a higher price. Mr. Levitt and Mr. Dubner found that sales data for homes in the Chicago area reflected the way realtor incentives are structured: when an agent sells his own house, they keep in on the market an average of 10 days longer and sell it for 3% more compared to homes sold for clients.
You might want to check this excerpt from Freakonomics on the subject of real estate agents. It includes terms you should put in a for sale ad (and terms to avoid) and this funny story related by a professor who was looking to purchase a home:
I was just about to buy a house on the Stanford campus, and the seller’s agent kept telling me what a good deal I was getting because the market was about to zoom. As soon as I signed the purchase contract, he asked me if I would need an agent to sell my previous Stanford house. I told him that I would probably try to sell without an agent, and he replied, ‘John, that might work under normal conditions, but with the market tanking now, you really need the help of a broker.’
