Tuesday, May 27, 2008

Weirdly Rational Real Estate

If you're up for some brain-stretching exercise, listen to Robin Hanson talk with Russ Roberts about signalling.

Our old house in Madison
(Image from Google Maps Street View)

I think I'm missing a signalling gene or two, or maybe that's just my excuse for being a socially inept, introverted doofus. In any case, I sometimes reason myself into doing things... uh, differently.

For example, when we were moving from Madison, Wisconsin I used an unconventional method to find a realtor to sell our house. I sat down and decided what I really wanted was somebody who was really effective at selling houses-- somebody who would sell our house quickly for a lot of money. So I created a little questionnaire:
  1. How many listings are you currently handling as the seller's agent?
  2. How many buyers are you representing right now?
  3. For the last five homes you sold:
    1. How long were they on the market?
    2. What was their appraised price?
    3. What was the sale price?
... and then I visited open houses and gave it to the real estate agents, asking them to fill it out and mail it back to me.

According to the agent who we eventually picked, this didn't go over so well with many of their colleagues. Many were actually offended! We are supposed to find a realtor that we like personally, through word-of-mouth recommendations; somebody with whom we feel like we can develop a good relationship, somebody who we feel like we can trust.

In the language of Robin Hanson, somebody who gives us the right signals.

Especially in the case of realtors, this seems odd to me. I'm hiring somebody (for many thousands of dollars) to help complete a financial transaction; I don't care if I like the person, I just want them to do a good job. Heck, we were moving out of town, so it's not like we were going to be lifelong buddies with our realtor!

I distributed a dozen or so questionnaires, but only received 2 or 3 back. We picked the person with the best track record, and they sold our house very quickly (we had two offers within two weeks) for above our asking price. Yes, this was back in 1998, in the good-old-days of rising real estate prices, and yes, maybe we would have had the same good results if we'd picked any other real estate agent at random. The mystery is: why are we so reluctant to look at objective measures of effectiveness when choosing our realtors, doctors and school teachers?

1 comment:

Robin Hanson said...

Great example and question!