Homo Economicus Spotted in the Wild

“Is it really just [based on] price?”

“It’s always price.”

Currently on a plane, and was exposed to a show I’d never seen before, called Selling L.A.  While you might expect a standard reality show (yelling, crying, the Jersey Shore) combined with eye-popping amounts of money, it’s actually somewhat fascinating in a good way.  It obviously does involve eye-popping amounts of money, and in that way is a pretty interesting view into the world of high-end real estate.  The agents can walk through the house and know, pretty much instantly, what a client’s house is worth on the market.  Based on my cursory viewing, what separates one agents’ success from another’s failure is their ability to make their clients come to the same conclusion.

It’s a powerful reminder of how far people actually are from homo economicus.  While buying or selling a house is by far the most important financial transaction 99.9% of Americans will ever participate in, most people act anything but highly rational during the process.  Instead of the rational senses guiding “a real estate transaction”, all too often emotional senses guide “decisions about your home.”  Both the agents featured in this episode talked at length about the process they have for getting clients to treat this as “a business decision”.  The exchange quoted at the beginning is the best – it comes after one of the agents barrages the client with comparable houses, priced in the clients’ desired range, that have been languishing on the market.

Also, it’s a real reminder of what matters in the American economy.  I work at a small enterprise software company – our biggest sale to date was around $5M, and our deal size is a lot bigger than most of our competitors.  The more expensive house for sale was priced at around $8M.  Which, okay, a pretty comprehensible scale.  Except it’s one house in the Hollywood Hills, surrounded by thousands of equally expensive houses surrounded by hundreds of thousands of cheaper ones.  All of which are owned, bought, and sold.  The size of the real estate market is truly staggering in a way that is very easy to forget, and totally dwarfs the business-y stuff we tend to think of as “the economy”.

Tags: , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: