How will you rate your chances of success in a negotiation under the following circumstances:
- You (the buyer) and the seller both expect the house to be worth something between $300,000 and $285,000, the former also the list price.
- Each of you is biased to ward the end that serves your interests
- a. There is an agency cost of 6% (typical in the US) or b. there is no agent involved?
I ran a Monte-Carlo simulation on this, and found that with agents the probability goes down to less than 1%, while without agents, there is a ~40% chance that the deal succeeds!
The following figure shows the utility curves for the principals in this simulation. I use Palisades @Risk software for this model.
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2 comments:
Hersh,
It would be interesting to see the results. I. E. Chances of deal succeeding without agents, if the price positioning of the buyer and seller were further apart than the approx 7 % in your illustrative case. Lemme know.
Rikiya@iPhone
I did test that Rickya-- I find that as the principals become more flexible (i.e., they work with a broader range), the transactional friction introduced by the agents declines. Great insight! Thanks for your comment.
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