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Comment by wting | Hacker News Reader

There was a study on how real estate agents sell clients' houses vs their own. On average, agents will keep their own properties on the market ~10 days longer.[0]

If a client's house sells for $310k vs $300k, that's an extra ~$10k for the client. On the other hand, spending the additional time negotiating only nets the agent $300.[1]

Typically agents will sell additional houses rather than negotiate prices on sure sales. However their behavior changes when selling their own houses.

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[0]: From Freakonomics as mentioned by vitalique and roel_v below.

[1]: Real estate agent fees are typically 6%, equally split between buyer / seller agents.

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I think this is from Freakonomics by Levitt and Dubner. After the initial publication of the book (and probably before it, since this is just a typical principal-agent case) this point has been raised and discussed numerous times, though. National Bureau of Economical Research has a paper on this topic [0]. From the abstract: "It is not obvious that sellers benefit from those services".

[0] http://papers.nber.org/papers/w13796

Off topic, but from that paper's abstract:

"Our central finding is that, when listings are not tied to brokerage services, a seller’s use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which indicates that agency costs exceed the advantages of brokers’ knowledge and expertise by a wide margin."

Whoa.

The main difference between houses and job candidates are that the houses can't refuse the sale and have no idea of their own worth.

Recruiting is a sales job with a commission typically tied to salary of the hire (similar to commissions for selling houses that are related to sale price) - but where it gets interesting is that the brokered item in 99% of sales situations has no say in the matter. In recruiting, the candidate is to some degree the product of the transaction, and the product can reject the sale. It's an interesting dynamic that makes recruiting unique.

This explanation is rudimentary and hopefully recruiters don't treat candidates like some common 'product' for sale, but it gives some insight into why analogies between recruiters and realtors or other sales/commission jobs are not entirely relevant.

What? The job is what's for sale, not the employee. The hirer and the employee are the seller/buyer (or vice versa, doesn't really matter)

That is an interesting perspective, and again raises the question of contingency recruiting as a model. The company is paying for the service, so I guess you could equate the company as the seller paying a commission on the price. But the buyer (candidate in your model) and agent (recruiter) are the ones trying to drive price up (higher salary), which isn't how buyers act. I don't think that mentality is really prevalent in the industry, and the analogy seems to offend technologists. If there is a better analogy, I haven't found it yet.

My wife's a Realtor, so I have some insight into this. One aspect you're missing is the value of reputation, referrals, and repeat business. Going the extra mile for her clients to get them the best deal possible (which, sometimes, happens to be the offer-in-hand) has long-term consequences for getting future business. That's worth a lot more than the extra $300.

Also, "selling additional houses" isn't as easy as it sounds. There's a lot of unpaid effort involved in acquiring clients and getting to an offer, before any of the negotiation starts. Time spent negotiating and baby-sitting an existing offer at least has a high likely-hood of being paid time.

The post above is not saying that realtors are evil or useless, just that the standard commission schema means that a realtor's payoffs/incentives are quite different than the owner who hires the realtor.

That's pretty much always the case when one person hires another person to do something. The hire-er wants to get as much work done for as little money as possible, and the hire-ee wants to get as much money as possible for each unit of work. They're polar opposites, yet this arrangement happens all of the time.

The problem with having different incentives is when one party doesn't recognize that there is a mis-alignment. If you're selling your home and you don't realize that your Realtor's time is not an endless, worthless resource at your disposal, then you may be inclined to insist on your Realtor spending endless hours of aggressive negotiation, potentially putting the offer at risk of closing at all, for an amount of additional money to you that's not really going to make much of a difference to you. (My wife's been involved in deals where one party or the other has risked a deal that's been in the works for 2-3 months over less than 0.1% of the house's value.)

0.1% of a house's value seems like a fair amount of money. I doubt it would seem strange to put a lot of effort into getting that much money, if it was framed differently.

Admittedly, not spending 2-3 months to work out another deal is worth quite a lot of money as well. But this behaviour doesn't seem obviously irrational.

0.1% of a house's value is almost certainly not an appreciable amount of money. It's so low that, if the parties could not find a way to come to terms over it, the agents may swallow it themselves just to get the deal done.

For a half-million dollar home, which would be a relatively nice house for most of the country, you're talking about $500. For any party on that transaction (buyer, seller or their respective agents who each stand to make $15k on a normal 3% commission), that's not a lot of money and is almost certainly not worth arguing over if you're in all but the earliest stages of negotiation.

Reputation and referrals are my lifeblood. I have been giving things away for 15 years - mostly information, insight, tips, etc. I have contacts who ask me for career advice all the time, even when not looking for jobs, and I always take the call and try to provide honest advice. When those people are asked who to use for search, they send business my way.

I now do very little marketing to new clients or candidates - I post some jobs on my site, but very little advertising and very few cold calls. The value of acquiring a set of very specific and useful information (market rates, info on companies, etc.) and providing that to your network when asked is rewarded down the road.

Edit: Sorry I just noticed you are the original poster.

So are you saying that realtors don't on average keep their own houses on the market 10 days longer than they keep client houses? We don't need to fully understand the incentives to know they are different if we know the outcomes are different.

I'd love to know what the distribution of this is. If you pick a realtor at random it appears to be "worse" than not using a realtor, but what is the variance? I suspect that a good realtor is probably going to get you a better price, I'm pretty certain that a bad one won't!

When I bought my current property the seller used a listing only service and pretty much screwed up every part of the transaction that was possible to screw up (missed deadlines, filed the wrong papers, failed to show up for closing for 3 days...) - I nearly walked away, in retrospect I should have, this is basic stuff that even a sucky realtor will get right.

And where engaged or retained search is most valuable is to get rid of this. Real estate agents selling their own home know that they will sell that house - they aren't competing with other agents to sell their own home, so they aren't pressured to sell quickly. When recruiters are compensated partially up front and have semi-exclusive deals with companies, it takes away the need to sell quick (force a hire). If I know I'm going to fill the slot, and I know that another recruiter isn't going slip in and take my fee, I'm not of the same cut-throat incentives to just make a deal happen. Again, good analogy with contingency recruiting.

Source on the real estate agents is Freakonomics (which in turn no doubt has a reference to the 'real' source).

> Real estate agent fees are typically 6%, equally split between buyer / seller agents.

This is long obsolete. Only a fool pays more than 4% these days.

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