Problem 211 Real Estates Agents When real estate agents sell

Problem 21-1: Real Estates Agents: When real estate agents sell their own, rather than their clients\' houses, they leave the houses on the market for a longer time (10 days longer on the average) and wind up with better prices (2% higher on the average). Why?

Solution

This results from the principal agent problem.

When the real estate agents sell their own houses, they put their own interests at the forefront and leave the houses for longer duration to fetch higher prices, because they act to the best of their own interests. But when they\'re dealing with their clients\' houses, they act as agents for the clients and due to principal-agent conflict, they fail to put their clients\' interests at the forefront. This conflict ends up in this anomalous behavior pattern.