5.15.2006

Real Estate Theory

I'm on a roll with these theories. See how you like this one. In Freakomics, the authors show how real estate agents' own homes tend to sell at a higher price than their clients'. They theorize that the difference may be due to the fact that the extra effort in getting a better price for one's own home nets the agent 100% of the increase, while the same deal for a client only nets 3% or so of the difference. This may not be worth the effort in time and chance expended.

That caused me to wonder today (a friend is looking to buy a house) about relative pricing of homes. Suppose a home is priced lower than market value. This would make it not only attractive to potential buyers, but also to the agents trying to sell. The reduced price won't bother them, because 3% of the reduction won't amount to much. But the fact that it'll move quickly means that they don't have to invest as much energy, and can sell more houses in less time. Therefore one would guess that these houses would be shown to potential buyers more often than average or above average-priced homes. In fact, you'd think that there would be a correlation between the relative pricing of the house and the amount of attention it gets.

This would be a great project for an undergraduate research paper. Maybe next semester.

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