Another Argument Against Real Estate Agents

Is it just me, or does it seem that the rap on real estate agents is going in the direction of lawyers? Gotta have ‘em when we need ‘em, I guess, but they sure make a lot of dough for doing not a lot of work. (Real estate agents run ads and hang key boxes. Lawyers — well I’m not sure what.) Heck, I know a guy who made three offers on a house on the lake only to have them all rejected. The eventual buyer ended up paying less than my friend offered. It turns out the buyer’s agent was also the seller’s agent. Can you say double commission, anyone?

Arguments in Freakonomics would make for the basis of a Redfin marketing campaign.

Well, I just finished reading Freakonomics, and it turns out the case against real estate agents is also an economic one. Authors Steven D. Levitt and Stephen J. Dubner argue that the current commission-based system :

(W)hat is the real-estate agent’s incentive when she is selling her own home? Simple: to make the best deal possible. Presumably this is also your incentive when you are selling your home. And so your incentive and the real estate agent’s incentive would seem to be nicely aligned. Her commission, after all, is based on the sales price.

But as incentives go, commissions are tricky. First of all, a 6 percent real-estate commission is typically split between the seller’s agent and the buyer’s. Each agent then kicks back half of her take to the agency. Which means that only 1.5% of the purchase price goes directly into your agent’s pocket.

So on the sale of your $300,000 house, her personal take of the $18,000 commission is $4,500. Still not bad, you say. But what if the house was actually worth more than $300,000? What if, with a little more effort and patience, she could have sold it for $310,000? After the commission, that puts an additional $9,400 in your pocket. But the agent’s share — her personal 1.5 percent of the extra $10,000 — is a mere $150. If you earn $9400 while she earns only $150, maybe your incentives aren’t aligned after all. (Especially when she’s the one paying for the ads and doing all the work.) Is the agent willing to put out all that extra time, money and energy for just $150?

Freakonomics at pp.8-9. Levitt and Dubner posit that the way to answer this final question is to measure the difference between sales data for houses that belong to real estate agents themselves and the houses they sold on behalf of clients. And sure enough, it turns out that, using data from the sale of 100,000 Chicago-area homes, real estate agents leave their own homes on the market an average of ten days longer and sell them for an extra 3-plus percent — $10,000 on a $300,000 house. According to the authors:

When she sells her own house, an agent holds out for the best offer; when she sells yours, she pushes you to take the first decent offer that comes along. Like a stockbroker churning commissions, she wants to make deals and make them fast. Why not? Her share of a better offer — $150 — is too puny an incentive to encourage her to do otherwise.

Redfin, anyone?

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Betcha.com: The Hits Just Keep on Comin’

Another “you gotta be f—in’ kiddin’ me” on the Betcha.com front.

First it was getting set up and then extradited to Louisiana as a fugitive from a state I hadn’t been to since 1994.

Then it was losing in court based on an argument the state didn’t even raise.

Now Americans can lose the rent money playing video games -- and no one will bat an eye.

Then it was seeing a state appellate court judge hold in dissent that Betcha bettors were gambling because, inter alia, we hosted our servers in Canada.

Then it was seeing the Washington State Gambling Commission try to sneak language into the definition of gambling that would kill Betcha.com before the courts had a chance to rule — and do it in the budget.

Then it was watching the WSGC tell a friend that it was okay to bet on movies because the sites that offered the product called the bets “futures” — even though players had no right to opt out if they lost.

Then it was watching another company literally steal our name and basically copy our business model. (No links on that one by design.)

Then it was watching the Washington State Supreme Court — well, I’ve said enough about that. (1I2)

The latest? A buddy of mine gave me the heads up that Virgin Group is getting into the gaming business. The LA-based megacorp is apparently going to offer a website whereby players can compete against one another in video gaming for real money. They call them “challenges” instead of “bets.” And unlike Betcha.com, they do not have the right to opt out of their losses.

As “you gotta be f–kin’ kiddin’ me’s” go, this one isn’t so bad. Virgin is a private company, it has the right to do what it wants, and as the betting that happens is on games of skill, the betting is not gambling, at least as defined by Washington state law. Nevertheless, Betcha.com basically got shut down for violating the spirit of the law — even the State’s lawyers admitted the issue was, at worst, unclear. We made that point to the state Supreme Court in our supplemental brief, but no one brought it up.

Will the WSGC invoke the same “spirit” against a massive corporation like Virgin?

“Betcha” it won’t.

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A Site to Bet Real Money on Movies? How Come?

If the rules of the bet allow you to opt out of it even after you lose it’s still gambling — at least according to the Washington State Gambling Commission. That’s why Betcha.com is no more, and why Reese and Finn’s college funds are now in Louisiana.

What if the rules of the bet don’t let you opt out, but instead of calling it a “bet” it’s called a “future”? Is it gambling then?

We may soon find out but so far the answer appears to be “apparently not.”

I woulda bet big against Avatar -- and I would have lost.

A couple of buddies gave me the heads up on a new “futures exchange” being launched out of New York by folks from Cantor Fitzgerald. The Cantor Futures Exchange, billed by The New York Times as a “place to bet real money on movies,” is scheduled to launch next month. The site purports to be a place to bet real money on how well (or not) movies will do at the box office — basically by betting the over-under on a movie’s performance. ABC even covered it on this morning’s Good Morning America. A Chicago-based company, Trend Exchange, reportedly will be doing the same thing.

To me and the author of this piece on Daily Finance, that “(s)ounds an awful lot like gambling on sporting events.” Funny — Betcha offered box office betting, but losers had the right to opt out after they lost (no losing the rent money there). But that, said the WSGC, was gambling. Hmm.

I have no idea what the folks in Lacey will think about these sites, which hold great promise as additions to American competitive pop culture. Nor would I care to guess given the way they “interpret” Washington state gambling law. One thing’s for sure though — as much fun as it looks, I won’t be betting on box office returns. As much fun as it may be, something tells me they’d enforce it — and most publicly — against me.

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A Real Life Example of Our Broken Schools

Yesterday I talked to a 17-year old kid who I know fairly well. Sophomore in high school. Here’s what I found out upon inquiring into the kid’s schooling.

In History, they did not study the Civil War. They studied World War I, but did not study the Treaty of Versailles. (How is that possible?) They did not study World War II.

Somehow, in one class or another, they learned about vaginal rings.

In some schools, kids are apparently learning about this stuff before the Civil War.

So vaginal rings before the Civil War. And God knows what else.

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How come . . .

when President Bush was in office, it was “patriotic” to dissent and disagree with the president? It was nothing short of an American duty.

When the president’s name is Obama, however, we’re all supposed to rally behind him . . .

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How Come It’s Only “Fear” When Conservatives Do It?

Ever notice that liberals criticize conservatives for playing the “politics of fear”? Terrorism, race, whatever — all “fear”-based.

Yet these same liberals who trot out these accusations have no problem trumpeting the world-ending effects of global warming. And they do it to justify government intrusions into the most basic aspects of human life (Seattle’s ban of beach fires comes immediately to mind).

How come when conservatives do it it’s “fear,” but when liberals do it’s just fine and dandy?

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