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Culture War Roundup for the week of March 25, 2024

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Can somebody steelman a buyers agent for me? They are paid as a percentage of the total cost of the sale, so aren't they incentivized to negotiate against their purported clients?

Agents always seem to have weird incentives. Reputation of course matters more than anything for more business.

The converse to a % would be an hourly wage for giving advice and finishing processes (like a Lawyer) but that system would encourage buyers agents to not close deals and instead have deals fail but keep the billable hours up.

Reputation to get more clients is the only thing that works to align client/agent incentives since every incentive system I see for agents in one-off deals would have misaligned incentives.

If I had to steelman buyers agents it’s probably something like they need to exists and most buyers have a need for the specific service to varying extents. The exact compensation structure is hard to perfectly align incentives.

Even if I am buying the simplest of real estate purchases say a condo in a 300 unit property and looking at a few similar sized buildings it would still take me hundreds of hours to figure out costs/benefit trade offs while a buyers agent who specializes in large condo buildings in a neighborhood should have built up a strong feel for relative value in those buildings. Maybe it takes 200 hours to gain pricing knowledge of condos in a neighborhood but if they have 20 clients/year for multiple years they spread that fundamental research time down to sub <10 hrs per client.

If I had to steelman buyers agents it’s probably something like they need to exists

Why do they need to exist in the age of the internet? It’s way less overhead to hit up Zillow for leads than it is to coordinate with an agent. You’d still have an appraiser, inspector, title insurance and a bank guarding the interest of the buyer. Earnest money protects the seller. If you need coordination, a one time fee is most appropriate. Residential real estate agents pattern match to cars salesmen who are strictly negative value. They artificially inflate the cost of automobiles via unwanted human interaction and likewise exist due to cartels.

As for pricing, Zillow or the equivalent will tell you the price and estimated price since the last sale of every property in your city from a birds eye view, often with photos from the previous sale. In my metro, there is no way the average buyers agent adds 30k of value - maybe a couple of grand is reasonable. On the sellers side, a one time fee also makes more sense to do staging, photos, and listings.

I got no disagreement that most deals can probably work on a bare bones style agent.

I was more steel-manning why they should exists versus why they should exists at a 3% commission.

A very small percentage of buyers agents likely do deserve 3%. There are unique projects that require far more expertise. If some platform rolled up buyers agents, paid them a salary, and charged 1% buyers fees I feel like that business model can work. To date that model has not work perhaps due to restrictions etc from the old ways.

Naive people think "they are paid more if it sells for more, and it is in my interests that it sells for more". They ignore that the agent wants to make a maximum profit per unit time, not a maximum profit per sale.

This assumes an infinite supply of potential sales. In practice I would expect to optimize over some denominator which combines time and sales, emphasized differently based on how saturated the market is.

Regardless, this doesn't address the main issue that the buyer's agent and seller's agent have near-identical incentives: have quick sales with high prices. The only distinction is that the buyer's agent's ability to market their services to future clients is correlated with low prices, but I'm not sure how strong of a correlation that is.

That's right. The only countervailing force is that they want to close a deal sooner rather than later to get paid, so they won't hold out for arbitrarily small increases in price.