Your house is an asset, your agent is an asset manager
March 20th, 2025
The real estate market is possibly the dumbest fee system out there: 2.5% for both the seller and buyer agents. It mis-aligns the agents, making them prioritize speed over maximizing your home selling price. Yes, there are “good agents”, but as Munger said, “Show me an incentive and I’ll show you the outcome.” Selling your house for 5% more makes almost no difference to them, but makes a material difference to you. The incentives are even dumber on the buyer’s side, but the market is (slowly) transition to flat fees going forward.
It’s unquestionable that seller’s agents provide some value (allegedly 5.5% more value, though hilariously this is basically the agent’s fee anyways). The question is how do you structure it so that the incentives are better aligned? I propose the market moves to the hedge fund’s 2 and 20 fees.
Price your house on the “seller’s agent market”. You submit your address and a basic 3D model/walkthrough of your house. Interested agents reach out to you, and you choose one based on the price but also experience, personality, etc. You both agree on the base asset price. In fact, you might choose an agent who proposes a lower asset price because they are a better match for you, based on personality, experience, etc. If the house sells for that price or below, the agent gets 2% of the final price. Anything over the price, the agent keeps 20%. The contract is good for a limited time (say 6 months) from signing, not from listing date, incentivizing the agent to move quickly. The agent’s 2% covers all costs. Staging, legal, photos, etc. It’s the agent’s asset to manage. Wealth management doesn’t charge clients for paperclips, neither should agents. It puts some skin in the game for them. Savvy agents have relationships or even in-house a lot of this work already. However, if you break the contract with them early, you need to pay for any costs incurred.
So long as the price is at least the base price, the agent should have discretion to accept it. Any additional conditions (no contingencies, no inspection, etc) must be negotiated beforehand. Below the base price, the homeowner retains the right to reject. In this model, the seller’s agent risks investing time and money and end up not selling the house. But it’s only fair: failing to sell a house costs the homeowner in mortgage interest, taxes, utilities, cost of capital. Both parties have lost. This is why the base asset price negotiation and a robust agent market is so critical.
An efficient market would mean that the seller’s agent fee will eventually reach a flat 2%. However, housing is definitely not an efficient market. I suspect this would eventually end with the “commodity” homes (condos, spec homes) being dominated by Costco-type firms or iBuyers, whereas agents focus more on custom homes where pricing is inefficient and their job of price discovery is more meaningful and the fee richly deserved.