Compare and contrast with Freakonomics

The Times tells us that those estate agents which charge a higher commission tend to overvalue properties. This is so as to gain the contract to sell said property of course.

Estate agent chains are overvaluing properties by up to a fifth in a practice that can mislead sellers into paying higher rates of commission, an investigation by The Times has found.

Analysis of more than 200,000 properties listed online reveals that overvaluations are rife, with the biggest agents the worst offenders.

The data suggests that agents with the highest commissions are over-valuing properties the most to attract homeowners. The properties then sell at lower prices, but the agents take big fees. Nearly two thirds of homes listed by Foxtons, the biggest agent in London, have to be reduced from their initial price before they can be sold, almost double the national average. Foxtons charges a commission of 3 per cent, which is more than twice the average.

There’s a certain amusement here as one of the interesting bits in Freakonomics was the research into the principal/agent problem in real estate - to distinguish American from British - markets. The point being that real estate agents seemed to gain higher prices when selling their own properties than they did when acting on commission for more normal sales. The answer being of course that when selling your own property you’ve rather more skin in the game. It’s worth being aggressive with price on the up side at the cost of perhaps a longer time to sell. In a manner that it isn’t when 6% (an American average) in commission doesn’t quite provide.

Here the complaint is that those gaining higher commission rates seem to be more aggressive upon price asked. Which is much the same point, isn’t it? Those with more skin in the game will indeed be more aggressive on price asked than those just looking for a smaller commission slice and thus interested most in the transaction taking place rather than the price at which it does.

Data from surveyors and the independent consultancy TwentyCi shows that on average Foxtons is able to achieve a 6.3 per cent price premium after fees

Whether we believe that or not - come along now, it’s marketing speak after all - it is the correct measure to be thinking about. Does being aggressive in asking price lead to a rise in price received? If so then what is the problem here?

Some old salesmans’ wisdom might aid here, when selling you can always lower your price but you can’t raise it.