RESEARCH BACKGROUND The origins of this research came out of personal experience renovating homes and then putting them on the market and wondering what were the dynamics at play when an agent lists a home for sale:  What are the agents’ incentives, what kinds of services do they offer, how do they get paid.  This led to the question of misalignment of interests between the sales agent and the homeowner.  The agent only gets a small percentage of the sales price ‘on the margin’ i.e. the last few thousand dollars of sale price earn the agent a minimal additional fee, and so do they really work for their clients to get the best price possible.  Read the shownotes in the blog. The theory is that the dynamic really changes when there is an offer on the table.  At that point the agent has earned 98% of the commission they are going to earn.  If they recommend to a seller to hold out and wait for another two, three weeks for a better offer, and consequently have to incur time and money expenses showing the home, advertising etc., the amount of incremental commission is not worth it to the agent – even if the additional sales price is worth it to the seller. Recognizing that agents also sell their own houses, the study set out to test this theory by looking at how agents perform when they sell their own houses versus how they do when they sell on behalf of clients.  This data is readily available because agents are required to report when they are selling their own home as a mandated disclosure.  The insight this perspective brings is akin to seeing what physicians a doctor takes her own family to, or what does a car mechanic do when they work on their own car.  In short, the study gives an opportunity to see what the expert does when they serve themselves, versus when they are hired to do it for a client. The way that agents are currently compensated creates a misalignment between the agent’s incentives and the home seller’s incentives.  When a home is sold, there is a commission that is paid to the agent of 5-6% that is split with half of that going to the seller’s agent and half going to the buyer’s agent, and then the agent has to split again with their brokerage which differs from company to company, and from agent to agent, and in all cases reduces the share of the commission to the individual agent.  If we assume that the broker split is 50%, then the share that the listing agent gets somewhere between 1.25% and 1.5% of the total sale price. Leave a review in iTunes. Now you may think that this is what you want; that as the sale price goes up for the home, the agent is compensated more because they get a percentage of the sale price as their commission.  So you might think that the motivations of the agent and of the seller are aligned, but it is the magnitude of the incentives on the margins that creates the misalignment.   SAVINGS ARE SIGNFICANT Let’s say you get an offer of $637,000 for a home.  At that point the agent has earned around $17,500 in commission.  To get an additional 4% for the sale of the home would add over $25,000 to the sale price that would go straight into the seller’s pocket, but would earn the agent only an additional $350.  That $350 is only 2% more commission for the agent and in nominal dollars.  This is just not worth the extra effort working for two or three weeks more, doing more showings and open houses, and continuing to advertise the property.  The agent would rather recommend to the seller that they accept the offer, take their commission, and move on to the next deal – but the seller would clearly be better off with the extra $25,000.  The problem is, therefore, that the commission rate returns on the margin such a small amount to the agent that gives them such a low incentive to proceed relative go the home seller. The researchers looked at this typical case and compared it to what happens when an agent sells his or her own house.  In this case it i