The Economics of Real Life

The Probability That a Real-Estate Agent Is Cheating You (and Other Riddles of Modern Life): "While negotiating to buy old houses, he found that the seller's agent often encouraged him, albeit cagily, to underbid. This seemed odd: didn't the agent represent the seller's best interest? Then he thought more about the agent's role. Like many other 'experts' (auto mechanics and stockbrokers come to mind), a real-estate agent is thought to know his field far better than a lay person. A homeowner is encouraged to trust the agent's information. So if the agent brings in a low offer and says it might just be the best the homeowner can expect, the homeowner tends to believe him. But the key, Levitt determined, lay in the fact that agents 'receive only a small share of the incremental profit when a house sells for a higher value.' Like a stockbroker churning commissions or a bookie grabbing his vig, an agent was simply looking to make a deal, any deal. So he would push homeowners to sell too fast and too cheap. "