Freakanomic Real Estate
The mastermind behind Freakanomics is Steven Levitt, who teaches economics at the University of Chicago. Levitt using intensive data analysis to answer all kinds of interesting questions. As a big fan of Levitt and Freakanomics, I was really interested when he looked into real estate agent commissions.
Levitt and the Freakanomics team examined real estate data to try to determine if real estate agents aligned their own interests with those of their clients. You may be surprised to learn that the data didn’t show much alignment at all.
First, they found that agents have an incentive to sell homes quickly. If a home is listed for $300k, and an offer for $290k comes in, an agent typically encourages the seller to take the offer. What is a $10k difference to the seller only amounts to about $150 difference to the agent.
However, if the seller rejects the offer then the agent has to spend more time and money selling that home. That’s time and money they could use with other clients.
Second, they found that when agents sold their own homes they take the extra time to get the full asking price.
All this means is that, according to the data, real estate agents do not align their own financial interests with those of their clients.
It’s no secret that customer service is a major differentiator in a lot of industries. According to Freakanomics there is clearly room for improvement in the real estate world.
Here at BlueMatch, we’ve taken Levitt’s findings to heart and structured our entire business model around aligning our company’s interests to our clients’ interests. Our long-term sustainability requires us to do so.
How We Work
When a client signs on with us to help sell their home, we do a number of things. First, we write into our contracts that clients can walk away at any time, no questions asked. We also make an investment in their home and their selling process. We pay for marketing, professional photography, signs, lockboxes, all the backend operational costs, and more.
We do all this up front. Before we ever take a penny. Only at closing, when the sale process is complete does BlueMatch collect a flat fee for all the work we do. Essentially this means we work on razor thin margins and can’t afford to have clients leave.
Why We Have to Align Interests with Our Clients
If we told clients that their homes are worth more than market value and they don’t get the offers to reflect that, or if we tried to get clients to take the first offer they received for a quick close, our clients would leave.
That’s bad for our referral business. That’s bad for our attrition rate. That’s bad for our sunken costs, and that’s bad for our customer satisfaction rates.
By aligning our interests with our clients’ interests, we’re able to provide better service, generate more referrals, and keep attrition rates in the single digits, which makes our business model sustainable.
This may sound like a tenuous situation, but it was intentional. As a business, we’re very transparent about our approach and our business model. We designed our company so that the only way it would be sustainable was by being a customer-centric company.
If you have questions about how our process works, or how our business model forces us to focus on our clients’ best interests, or for anything else related to real estate, feel free to contact us.