Blogs & Comment

Selling a house in a downturn

A reader writes asking for help finding a real-estate agent who can sell her house in a down market. I have been trying to sell my home since Christmas without much luck, she explains. Unfortunately, the agents have been unhelpful: everyone wants the listing but not the work.
One thing to realize about real-estate agents, as pointed out in the book Freakonomics(authored by economists Steven Levitt and Stephen Dubner), is that they arent overly motivated to get the best price for a homeowner. After netting out overhead costs and shared commissions, theyll earn 1.5% to 2% of the house price. Holding out for a higher price doesnt yield a lot of money: an extra $15,000, for example, generates less than $300 for them. Like a stockbroker churning commissions, the real-estate agent wants to make deals and make them fast, write Levitt and Dubner.
In a down market, the motivation is likely even weaker. Its more of an uphill battle with less certainty of reward. So agents may have an incentive to put in a nominal effort while waiting for (or attempting to persuade) the homeowner to capitulate and lower their price. It would help if the market for real-estate agent services was competitive, but the MLS (Multiple Listing Service) is a cartel-like arrangement according to many economists as described in The real estate cartel.
One solution then is for the homeowner to restructure incentives. Give the selling agent a performance bonus for selling at a good price. For example, if they can sell your property for $15,000 more than your neighbors let them take 10% (or whatever) of the increment. Many different compensation arrangements are possible putting some thought into structuring the right package to fit your particular circumstances may do the trick.