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I understand the point of your idea, but it won't accomplish what you want.
What you really are wanting to do is be offering them an incentive to negotiate down from market value for a particular property. So if the market value is around $500k, you want to offer them an incentive to get it for you for $450,000. If the market value is really $600,000 then you want to offer them an incentive to get it for you for $540,000.
You are trying to eliminate one bias and in doing so create another bias. You want to reward your agent for negotiating hard for you regardless of purchase price. That is what I think you are trying to accomplish, right?
There are enough agents who know the value of their service that will easily discount their fees and the quality of service to you.
Discount? Yes, there are plenty of agents willing to discount their services because they aren't experienced. I am not interested in them. Under this proposal, the commission can be higher than 3%, which means I would be paying them more. I want an agent who will find more house for less, and am willing to pay them more for this if they do.
What you really are wanting to do is be offering them an incentive to negotiate down from market value for a particular property. So if the market value is around $500k, you want to offer them an incentive to get it for you for $450,000. If the market value is really $600,000 then you want to offer them an incentive to get it for you for $540,000.
You are trying to eliminate one bias and in doing so create another bias. You want to reward your agent for negotiating hard for you regardless of purchase price. That is what I think you are trying to accomplish, right?
Yes, I want the compensation scheme to have two features 1) provide an incentive to negotiate down on price. 2) provide an incentive to try and find a house near the lower end of my range rather than at the higher end.
One agent I talked to (he was our second choice -- helped that he had an econ degree) counter-proposed a scheme based upon how far below list price he was able to negotiate. I liked that he understood what I was trying to accomplish, but it lacked feature #2 above.
I considered a formula with both a price range term and a list price term, but decided that would be way too complicated. As long as there's a negative sign in front of salesPrice, both features are accomplished. The incentive for negotiation doesn't have to be strong, it just has to be there.
What bias have I created?
Last edited by perfectlyGoodInk; 09-05-2012 at 10:28 AM..
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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I kind of like the outside the box idea and I'd certainly would entertain the concept if it was presented to me by a buyer. I also think it's pretty clever of the agent to suggest a 100% rebate and a follow up adjustment which could be submitted to the escrow agent for payment in escrow.
Yes, I want the compensation scheme to have two features 1) provide an incentive to negotiate down on price. 2) provide an incentive to try and find a house near the lower end of my range rather than at the higher end.
One agent I talked to (he was our second choice -- helped that he had an econ degree) counter-proposed a scheme based upon how far below list price he was able to negotiate. I liked that he understood what I was trying to accomplish, but it lacked feature #2 above.
I considered a formula with both a price range term and a list price term, but decided that would be way too complicated. As long as there's a negative sign in front of salesPrice, both features are accomplished. The incentive for negotiation doesn't have to be strong, it just has to be there.
What bias have I created?
To only show you homes in your lower price range since they get paid more.
I kind of like the outside the box idea and I'd certainly would entertain the concept if it was presented to me by a buyer. I also think it's pretty clever of the agent to suggest a 100% rebate and a follow up adjustment which could be submitted to the escrow agent for payment in escrow.
To do it that way is the cleanest way. Since we can't rebate in Oregon, I'm not sure how I would handle it. I'd have to waive part of the fee if it was higher than what I had agreed to with a buyer, but then I'd want that as a price reduction for my buyer not going to the listing agent. It doesn't make sense to have those commission dollars in play going to the listing agent.
I would probably only entertain it, if we agreed that I would just waive the buyer agent compensation on the MLS and the buyer paid me directly. The listing agent would still be entitled to the full listing fee, so I think I'd just try and get that percentage in closing costs, or more repair work for the buyer. Not sure.
Now that I'm talking though it, I don't think I would entertain it.
To only show you homes in your lower price range since they get paid more.
Yes, but we prefer that bias over the standard scheme's bias to only show me homes in my higher price range. Since the agent is only paid if we close on a home, they will want to find us a home we like even if it's higher than the minPrice.
Yes, but we prefer that bias over the standard scheme's bias to only show me homes in my higher price range. Since the agent is only paid if we close on a home, they will want to find us a home we like even if it's higher than the minPrice.
Why don't you just find a good, ethical agent that cares about customer service more than a $500 incentive? That way bias is gone.
Why don't you just find a good, ethical agent that cares about customer service more than a $500 incentive? That way bias is gone.
That was actually part of the point. It's hard to tell agents apart, because all of them will claim to be good and ethical (indeed, this is a signaling problem). I figured a good test would be to present this scheme. A good, ethical agent would understand that it is fair and agree to it. We ran far away from any agent that either claimed their services were free or complained that we weren't trusting them enough. We lucked out in that we found an agent who had already been thinking about how to implement this cleanly, and I'll ask them if they have any ideas about how to do this in Oregon.
We're still curious to see how it would work in practice and also interested in creating a template for other buyers and agents to use. If our agent understands the standard scheme is backwards, there are probably other agents who do as well. That's part of why I want feedback.
To only show you homes in your lower price range since they get paid more.
Quote:
Originally Posted by perfectlyGoodInk
That was actually part of the point. It's hard to tell agents apart, because all of them will claim to be good and ethical (indeed, this is a signaling problem). I figured a good test would be to present this scheme. A good, ethical agent would understand that it is fair and agree to it. We ran far away from any agent that either claimed their services were free or complained that we weren't trusting them enough. We lucked out in that we found an agent who had already been thinking about how to implement this cleanly, and I'll ask them if they have any ideas about how to do this in Oregon.
We're still curious to see how it would work in practice and also interested in creating a template for other buyers and agents to use. If our agent understands the standard scheme is backwards, there are probably other agents who do as well. That's part of why I want feedback.
"A good, ethical agent would understand that it is fair and agree to it."
Not really. It would only become "fair" if the agent agrees to it.
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