Game theory buys 29 Mason
Global Shelter: When your home needs an international reach and deserves an international strategy
One thing Sydneysiders seem to appreciate more than we Melburnians do is the power of a view. This home is just 5 minutes from Austin Hospital, 17 minutes from Carey, and 23 minutes from Grossi Florentino. It sits on two lots of two levels, backing onto a large private park. The home will be completed in one month, featuring a brand-new $9 million rebuild with 48 tons of steel — the average home < 1 ton.
The asking price is $12 million, listed with the very pleasant Stewart Oldmeadow (0412 119 277) and Liz Walker (0412 659 140).
On the topic of views and prime locations, across town by the Bay and less than 30 minutes from Grossi Florentino, there’s another home ready for immediate move-in. It offers an expansive view, a tennis court, and is just 5 minutes from the water, Brighton Grammar, and Firbank. The large land’s prime location—near both the station and shops—was a huge plus for our clients as their teenage children grew, as it’s almost impossible to find in Brighton, but now it’s time to downsize. The asking price is $9,900,000 to $10,800,000.
Contact the equally bright and breezy Andy Nasr on (0422 029 324) to schedule a viewing.
At James Buy Sell, we understand that real estate, particularly in high-stakes transactions like our recent purchase of 29 Mason St, Hawthorn, involves more than just buying and selling; it’s about making informed, strategic decisions. This is where Game Theory comes into play. It’s a concept I revisited during my Master’s at RMIT, and it’s been invaluable in helping us navigate the complexities of the market.
Game Theory might sound intimidating, but at its core, it is the study of mathematical models of strategic interactions. It’s about understanding how different decisions affect outcomes, especially when multiple parties are involved with various conflicts of interest. It’s not just for academics—18 Nobel Prize winners have recognised its impact, and we’ve seen its benefits firsthand in our work for decades.
Whilst we are buyer advocates first, this week, we launched 10 homes for sale as part of our vendor advocacy division, each with its own unique strategy.
Whether it’s through auctions, off-market deals, or working with single or multiple agents, our approach is always tailored to the situation. We feel real estate has no one-size-fits-all, and Game Theory helps us adapt our strategies as needed.
We’ve structured the sales with flexibility in mind, understanding that sometimes the best path isn’t the one you originally planned. In a challenging market, being able to pivot without losing momentum is key.
We hope this discussion on Game Theory inspires you to see it not as something abstract or overly complex but as a practical tool that can make a real difference in your real estate decisions.
The questions we’ve prepared below are designed to guide you in applying Game Theory to your specific situation—whether you’re buying, selling, or just interested in understanding the dynamics at play, perhaps as an agent.
We’re here to help, and we hope you find this informative and thought-provoking. We’re committed to guiding you through the complexities of real estate and helping you see an alternative to cutting someone else’s lunch (every time).
There’s that price sandwich again!
Game Theory below: James Buy Sell asks some questions of some typical Melbourne Top End real estate scenarios.
It’s not about right or wrong; it’s about exploring options that may work better for you. All responses are unedited and are not facts; they are sieved opinions from many sources on the net, distilled by ChatGPT to allow easier comprehension.
The idea is to open up fresh, dynamic thinking in each situation, giving several options before you and your team decide.
Click v for the ChatGPT responses on them.
Auction Statement: “Quote ’em low, watch ’em go; quote ’em high, watch ’em die.”
This statement reflects the idea that setting a lower price guide can attract more bidders and create competitive bidding, while setting a higher price guide might discourage participation and lead to a stagnant auction.
Application in a Strong Market
- Quoting Low in a Strong Market:
- Strategy: In a strong market, there is high demand, and many buyers are competing for properties. Quoting low can create a feeding frenzy, where multiple buyers engage in aggressive bidding, driving the final sale price well above the initial quote.
- Game Theory Insight: This strategy leverages the principle of escalation. As more buyers enter the bidding war, they become increasingly committed to winning, often leading to a higher final price due to competitive pressure.
- Outcome: The seller benefits from the competitive tension, often achieving a sale price that exceeds expectations.
- Quoting High in a Strong Market:
- Strategy: Quoting high might give the impression that the property is overpriced, which could reduce the number of interested buyers.
- Game Theory Insight: With fewer bidders, the auction may fail to generate the necessary competitive dynamic, leading to a situation where the property fails to sell or sells at a lower price than anticipated.
- Outcome: The seller risks a less successful auction with limited buyer engagement.
Application in a Slow Market
- Quoting Low in a Slow Market:
- Strategy: In a slow market, demand is lower, and buyers are more cautious. Quoting low in this environment can still attract more buyers, even if fewer in number, by creating a perception of value.
- Game Theory Insight: This strategy aims to create momentum. Even in a slow market, a few motivated buyers can create a competitive atmosphere, encouraging others to participate and potentially driving the price up.
- Outcome: The seller might secure a reasonable sale price by ensuring that at least some buyers are engaged and willing to compete.
- Quoting High in a Slow Market:
- Strategy: Quoting high in a slow market is particularly risky, as it may deter the few potential buyers from participating altogether, leading to a failed auction.
- Game Theory Insight: The lack of competition can lead to a negative spiral, where no one is willing to start bidding, causing the auction to “die” due to insufficient interest.
- Outcome: The property is likely to remain unsold, or if sold, it may be at a price far below expectations after the seller is forced to negotiate downwards post-auction.
Conclusion
Strong Market: In a strong market, quoting low is often the optimal strategy according to game theory, as it maximizes buyer engagement and competitive bidding. Quoting high, conversely, can lead to a less dynamic auction.
Slow Market: In a slow market, quoting low can still be beneficial by attracting cautious buyers, while quoting high is generally more detrimental, as it can lead to a complete lack of engagement.
In both market conditions, game theory suggests that creating an environment where buyers feel compelled to compete is key to achieving the best possible outcome at auction.
In a less public sale scenario, such as an Expression of Interest (EOI) process conducted behind closed doors, the negotiation dynamics differ significantly from a public auction.
Game theory can be applied to understand how the negotiation skills of both the agent and the buyer impact the final outcome, especially when there is only one bidder.
Scenario Breakdown:
Situation:
- Buyer: Has average negotiation skills.
- Agent 1: Poor negotiation skills.
- Agent 2: Excellent negotiation skills.
- Buyer with Average Negotiation Skills vs. Agent with Poor Negotiation Skills
- Outcome:
- The buyer may end up securing the property at a price closer to their initial offer, as the agent may not effectively counter or push for a higher price. The buyer’s average skills may be enough to exploit the agent’s weaknesses.
- The final sale price might be lower than the property’s potential market value because the agent fails to leverage the EOI process to create perceived competition or urgency.
- Game Theory Insight:
- Weak Player Advantage: In this case, the buyer benefits from the agent’s poor negotiation skills, leading to a suboptimal outcome for the seller. The negotiation process lacks the tension and strategic moves that could drive the price higher.
- Buyer with Average Negotiation Skills vs. Agent with Excellent Negotiation Skills
- Outcome:
- The agent, with superior negotiation skills, is likely to steer the process in favor of the seller. They can create a sense of scarcity, urgency, or even hint at other potential offers (real or perceived) to encourage the buyer to increase their offer.
- Even though the buyer has average negotiation skills, the agent’s ability to manage the conversation, present counter-offers, and apply subtle pressure will likely lead to a higher final sale price.
- Game Theory Insight:
- Strong Player Dominance: The agent’s excellent negotiation skills put them in a dominant position, allowing them to extract more value from the buyer. This dynamic often leads to an outcome where the buyer pays closer to the property’s maximum perceived value, despite their average skills.
- Strategic Considerations for the Seller
- Choosing the Right Agent:
- Given the critical role of the agent’s negotiation skills, sellers should prioritize selecting an agent with proven negotiation expertise, especially in a less public sale. This choice can significantly impact the final sale price.
- Managing the EOI Process:
- An experienced agent can structure the EOI process to create perceived competition, even in a scenario with only one bidder. By managing information flow and timing, they can influence the buyer’s perception of the property’s value.
- Potential Risks and Benefits
- Risk with Poor Agent:
- The risk is clear: the seller may leave money on the table due to the agent’s inability to maximize the buyer’s offer. The transaction could close at a lower price, negatively impacting the seller’s returns.
- Benefit with Strong Agent:
- A strong agent can mitigate the risks associated with a single bidder by using advanced negotiation tactics to ensure the seller gets the best possible price. This can make a significant difference in the outcome, particularly in a slow market where attracting multiple bidders is challenging.
Conclusion
In an EOI process with a single bidder, the negotiation skills of the agent are crucial. A buyer with average skills can secure a better deal if the agent is weak, but a highly skilled agent can still drive up the price to benefit the seller. For sellers, the key takeaway is the importance of selecting an agent with excellent negotiation capabilities, as this can turn a potentially weak negotiating position into a strong one, maximizing the property’s sale price.
Applying game theory to this scenario, where three agents offer identical services but differ in their response to lowering commissions, you would consider the following:
Lowest Commission Agent (Said Yes):
Strategy: This agent’s willingness to lower their commission without hesitation may suggest they are less confident in achieving a higher sale price or maybe more desperate to secure the listing.
Game Theory Insight: This could indicate a weak position in negotiations, where the agent might be more inclined to prioritise securing the sale over maximising the final price. This could result in a lower sale price, as their incentive to push for the best deal might be reduced.
Middle Commission Agent (Said Maybe – How Much):
Strategy: This agent’s response shows a willingness to negotiate but with caution. They are open to compromise but also value their service enough to seek clarification before making a concession.
Game Theory Insight: This reflects a balanced approach in negotiations. The agent values their work but is flexible enough to adjust if it benefits both parties. This agent might still be motivated to achieve a high sale price, understanding that their commission is linked to performance.
Highest Commission Agent (Said No):
Strategy: This agent’s refusal to lower their commission demonstrates confidence in their ability to deliver superior results. They believe their higher commission is justified by the value they bring to the transaction.
Game Theory Insight: This represents a strong negotiation position. The agent’s confidence may indicate a higher likelihood of achieving a top sale price, as their financial incentive is aligned with maximising the sale outcome. According to game theory, this agent is signalling that they are fully committed to securing the highest possible price, which can benefit the seller.
Conclusion:
Based on game theory, you might engage the highest commission agent. Their refusal to lower their commission suggests they have strong negotiation skills and confidence in their ability to deliver results. This confidence and alignment of incentives could lead to a better overall outcome for the seller, as the agent is more likely to be motivated to secure the highest possible sale price.
When dealing with ultra-high-end properties, the concern about having only a few bidders—or even just one—raises important questions about pricing and negotiation strategy. Here’s how Game Theory applies in such scenarios:
- Low Number of Bidders and Price Outcomes
- Auction Dynamics: In an auction with a low number of bidders, the final sale price typically ends up just slightly above the second-highest bid. If there’s only one bidder, that bidder essentially sets the price, often close to the reserve price or the starting bid.
- Game Theory Insight: With fewer participants, the competition is reduced, which weakens the seller’s leverage. This situation can lead to a suboptimal outcome where the seller doesn’t capture the full value of the property. The second bidder’s willingness to pay sets a floor, but with only one serious bidder, the ceiling is just a minimal increment above that.
- One Bidder Scenario
- Outcome with One Bidder: If there is only one bidder, the auction dynamics change dramatically. The single bidder has significant power because there is no competition to drive up the price. The seller is left with two options: accept the bid, likely close to the reserve price, or risk withdrawing the property from the market.
- Game Theory Insight: In this scenario, the “Nash Equilibrium” suggests that both the seller and the bidder will settle at the reserve price or slightly above, as the bidder knows they have no direct competition. The seller’s best strategy might be to create an illusion of competition or consider alternative sales strategies like private negotiations to extract a higher price.
- Strategies for Sellers
- Create Perceived Competition: Even if actual competition is low, creating the perception of multiple interested parties can drive up the bidder’s offer.
- Private Negotiation: Transitioning from an auction to a private negotiation can be more effective in extracting a higher price from a single bidder, leveraging the exclusivity of the property.
- Pre-Auction Offers: Encouraging pre-auction offers might stimulate early competitive behaviour, even with a limited number of bidders.
In summary, Game Theory suggests that in scenarios with few bidders, particularly with only one, the seller needs to employ strategic approaches to maximise outcomes, such as creating the perception of competition or moving to private negotiations.
Source
To distinguish between an agent with good negotiation skills and one with poorer skills when both come from reputable companies and offer similar services, consider the following:
- Ability to Handle Objections:
- A skilled negotiator will confidently address any concerns or objections you raise, using persuasive arguments to put your mind at ease. A less skilled negotiator might struggle or become defensive when challenged .
- Response to Hypothetical Scenarios:
- Test their negotiation approach by asking how they would handle specific scenarios, such as a low-ball offer. A strong negotiator will outline a strategic response, demonstrating how they would maximize the sale price, while a weaker negotiator might provide vague or less convincing answers .
- Demonstrated Emotional Intelligence:
- A good negotiator will show strong emotional intelligence, reading your concerns and responding appropriately. They will demonstrate empathy and adapt their communication style to build rapport, which is crucial in negotiations .
- Track Record and References:
- Ask for examples or references from previous clients where the agent successfully negotiated above-market deals. A strong negotiator will have a track record to back up their claims, while a weaker negotiator may lack compelling evidence of past success .
- Confidence and Composure:
- Observe how the agent carries themselves during discussions. A good negotiator will exude confidence and maintain composure, even under pressure, which is vital in high-stakes negotiations. A weaker negotiator might appear uncertain or anxious .
Sources
- Getting Agents to Compete for Your Job First (Pre-Commitment Strategy)
- Strategy: You have agents compete to win your listing by offering their best service package, marketing plan, and commission rate upfront.
- Game Theory Insight: This scenario mirrors the Prisoner’s Dilemma—each agent, acting in their self-interest, might undercut their competitors to secure the job. This can lead to lower commission rates but may not necessarily align with maximising the sale price.
- Outcome: The risk is that after securing the job, the winning agent may not feel as motivated to push for the best sale price, having already won the contract.
- Giving All Agents the Job and Then Having Them Compete with Offers
- Strategy: You allow multiple agents to list the property simultaneously and compete to bring in the best offers from buyers. The agent who brings in the highest offer secures the commission.
- Game Theory Insight: This strategy can create a competitive environment where each agent strives to outperform the others. However, it can also lead to the Prisoner’s Dilemma, where agents might prioritise speed over maximising the price, fearing that another agent might close a deal first.
- Outcome: This could lead to a quick sale, but potentially at a lower price, as agents rush to secure the commission.
- Giving All Agents the Job and Encouraging Collaboration
- Strategy: You engage multiple agents and encourage them to collaborate, sharing information and working together to achieve the highest possible sale price.
- Game Theory Insight: In a collaborative scenario, agents could achieve a cooperative equilibrium, similar to the best-case outcome in the Prisoner’s Dilemma, where all parties work together for mutual benefit. However, the challenge is ensuring that agents truly cooperate rather than secretly compete.
- Outcome: This approach could maximise the sale price if agents effectively collaborate, but there is a risk of coordination failure where agents don’t fully commit to collaboration.
Conclusion
- Competing for the Job First: This may secure better commission rates, but it risks diminishing agent motivation post-hiring.
- Competing with Offers: Can create urgency and competitive energy but might lead to a suboptimal sale price due to agents prioritizing speed.
- Collaborating with Offers: Offers the potential for maximising sale price but requires careful management to ensure true collaboration.
Given the insights from the Prisoner’s Dilemma, encouraging collaboration while allowing for healthy competition might strike the best balance, fostering both cooperation and motivation to achieve the best sale price.
Sources
The Prisoner’s Dilemma is a game theory thought experiment that involves two rational agents, each of whom can cooperate for mutual benefit or betray their partner (“defect”) for individual reward. This dilemma was originally framed by Merrill Flood and Melvin Dresher.
Applied to two high-end Melbourne real estate agents working for the same seller, each agent faces a choice: collaborate to secure the highest possible sale price or pursue individual tactics to maximize their commission, possibly at the other’s expense.
If both agents act selfishly, they might undercut each other, leading to a lower sale price and reduced commissions. Cooperation, however, could lead to a higher sale price and better outcomes for the agents as well.
The perception that real estate agents live in a world of egotists, even narcissists may stem from the highly competitive and image-conscious nature of the industry. Real estate, especially in high-end markets, often involves individuals who are focused on appearances, success, and status, which can sometimes attract personalities with narcissistic traits.
However, it’s important to note that not all real estate agents or their clients fit this stereotype. Many real estate professionals are genuinely dedicated to helping their clients find the right homes and make sound investments. They navigate a complex landscape that requires empathy, strong communication skills, and a deep understanding of human behaviour.
In short, while there may be individuals with narcissistic tendencies in the real estate world, it is not a universal characteristic of the industry. The best agents balance ambition with integrity, focusing on building long-term relationships rather than just immediate successes.
Here are the top five key traits commonly associated with narcissists:
Grandiosity: Narcissists have an exaggerated sense of self-importance. They believe they are superior to others and often expect special treatment. This grandiosity can lead them to overestimate their abilities and achievements.
Lack of Empathy: Narcissists often have difficulty understanding or caring about the feelings and needs of others. This lack of empathy can result in them being dismissive or insensitive to those around them, as they prioritise their own desires and interests.
Need for Admiration and Attention: Narcissists crave constant validation and admiration. They seek to be the centre of attention and can become upset or angry if ignored or underappreciated. Their self-esteem is often dependent on external approval.
Sense of Entitlement: Narcissists typically believe they deserve special treatment and privileges, often without having earned them. They may expect others to cater to their needs and can become frustrated or angry when things don’t go their way.
Manipulative and Exploitative Behaviour: Narcissists can be very skilled at manipulating others to achieve their goals. They may use charm, deceit, or coercion to get what they want, often without regard for the impact on others. This exploitative behaviour can damage relationships and trust over time.
These traits can vary in intensity from person to person. These traits can cause significant challenges in personal and professional relationships.
- Egotistical Agent vs. Collaborative Agent
- Egotistical Agent:
- Game Theory Insight: Narcissistic agents, driven by self-interest and the desire for personal gain, might push aggressively to close deals quickly to enhance their reputation or commission. While this could lead to faster sales, the focus on their own success rather than the seller’s best interest may result in suboptimal pricing or outcomes for the seller.
- Outcome: The seller might get a quick sale but potentially at a lower price, as the agent may prioritise closing the deal over maximising the seller’s return.
- Collaborative Agent:
- Game Theory Insight: Collaborative agents are more likely to work together with other agents and stakeholders to achieve the best possible outcome for the seller. They can leverage collective efforts, share information, and use strategic decision-making to negotiate better deals.
- Outcome: The seller is likely to achieve a better sale price, as the agent’s collaborative approach focuses on creating value for all parties rather than just personal gain.
- Impact of the Advocate’s Quality
- High-Quality Advocate:
- Game Theory Insight: A skilled advocate can align the interests of multiple agents, whether narcissistic or collaborative, ensuring that they work toward the seller’s best interests. The advocate’s ability to manage, mediate, and motivate the agents can result in a more cohesive strategy that maximises the final sale price.
- Outcome: The seller benefits significantly from the advocate’s role, especially if the advocate can balance the competing interests of narcissistic agents while fostering collaboration among them.
- Low-Quality Advocate:
- Game Theory Insight: A poorly skilled advocate might fail to manage the dynamics between agents, leading to inefficiencies, internal competition, or even conflicts. This could result in a fragmented approach, reducing the overall effectiveness of the sales strategy.
- Outcome: The seller might face a disjointed process, with agents either working at cross-purposes or not fully committed to achieving the best result.
- Seller Managing Agents Themselves
- If the Seller is Collaborative:
- Game Theory Insight: A collaborative seller may struggle to manage narcissistic agents effectively, as these agents might not align with the seller’s approach, leading to friction or suboptimal outcomes.
- Outcome: The seller could face challenges in achieving the desired result without an advocate or a strong management strategy.
- If the Seller is Egotistical:
- Game Theory Insight: An egotistical seller might find it easier to manage egotistical agents, as their goals may align. However, the lack of collaboration could lead to short-term gains at the expense of long-term value.
- Outcome: While the seller may achieve a quick sale, the price might not reflect the property’s full market potential due to the lack of strategic collaboration.
Conclusion
- Best Outcome: The best result for the seller is likely to come from a collaborative agent, particularly when managed by a high-quality advocate who can effectively coordinate multiple agents. This combination leverages the strengths of collaboration while mitigating the risks associated with egotistical behaviour.
- Comparison: A seller managing agents themselves, especially if collaborative, might struggle to achieve the same level of success without the expertise and coordination that a skilled advocate provides.
Sources
When choosing between an experienced, self-assured but non-team player agent versus a collaborative agent to represent you as a buyer or seller, Game Theory provides valuable insights into the potential outcomes based on their strategies and interactions.
Experienced, Self-Assured but Non-Team Player Agents
Pros:
- Decisive and Assertive: These agents are likely to be strong negotiators, taking charge and pushing hard for the best deal. Their confidence can be advantageous in competitive scenarios where a bold approach is needed.
- Focus on Individual Goals: They are driven by their success, which may align well with achieving the highest possible price or the best buying terms.
- Quick Decision-Making: Their independence allows them to act swiftly without needing to consult others, which can be critical in fast-moving markets.
Cons:
- Limited Collaboration: Their reluctance to work closely with others might lead to missed opportunities for information sharing or strategy refinement.
- Potential for Isolation: In situations where collaboration with other agents or stakeholders could create a better outcome, their solo approach might be a disadvantage.
- Risk of Conflict: Their assertive nature could lead to conflicts with other parties, potentially jeopardising the transaction.
Collaborative Agents
Pros:
- Enhanced Information Flow: Collaborative agents are more likely to gather and share valuable insights from various sources, leading to more informed decision-making.
- Flexibility and Adaptability: By working well with others, these agents can adjust strategies based on collective input, which can benefit complex negotiations.
- Relationship Building: Their ability to foster strong relationships with other agents, buyers, and sellers can lead to smoother transactions and long-term benefits.
Cons:
- Potentially Slower Decision-Making: Collaboration often requires consensus, which can slow down the process, possibly leading to missed opportunities in a fast-paced market.
- Risk of Diluted Focus: In trying to accommodate multiple viewpoints, the agent might not advocate as strongly for your individual interests.
- Dependence on Others: Their effectiveness may depend on the cooperation and competence of other parties, which can introduce risks if those parties are not as committed or skilled.
Game Theory Insights
- Self-Assured, Non-Team Players: In zero-sum situations, such as a competitive bidding war where one party’s gain is another’s loss, a self-assured agent’s aggressive tactics might be more effective. However, their lack of collaboration could lead to suboptimal outcomes in scenarios requiring nuanced negotiation.
- Collaborative Agents: In non-zero-sum games, where cooperation can lead to mutually beneficial outcomes, collaborative agents might create more value by leveraging their relationships and adaptability. This approach is ideal when long-term relationships and collective success are important.
Using Game Theory to Match the Selection of an Agent, Price Limit, and Home
Game theory provides a framework to make strategic decisions by considering the potential actions of other parties. When applying game theory to real estate, particularly in selecting an agent, price limit, and home, you can optimise your strategy by analysing the interdependencies of these choices.
- Selection of an Agent or Advocate:
- Agent’s Strategy: Agents have different negotiation skills and market knowledge levels. Choosing an agent with a strong track record and reputation can be seen as selecting a partner with a high probability of successfully navigating competitive bidding scenarios. The agent’s ability to read the market and influence outcomes will affect the subsequent price limit and home selection.
- Game Theory Application: Consider the agent’s strategies related to maximising your utility (e.g., obtaining the best price for a home). An agent with better negotiation skills might push for higher offers, altering the price limit you should set.
- Selection of a Price Limit:
- Price Strategy: The price limit you set directly impacts your negotiating power. If the price is set too high, it may attract more competition, driving up the final cost. If set too low, you risk being outbid. The Nash equilibrium concept suggests setting a price where no player (you or your competitors) is incentivised to deviate from their strategy, ensuring an optimal outcome.
- Game Theory Application: Analyse the market and other buyers’ likely price strategies to set a price limit that maximises your chances of securing the home without overpaying.
- Selection of a Home:
- Home Selection Strategy: The home you choose should match your strategic goals and the agent’s ability to negotiate effectively. A more desirable home might require more aggressive strategies, while a less competitive property might allow for a more conservative approach.
- Game Theory Application: Use backward induction to work from your desired outcome (obtaining a specific home within budget) to choose an agent and set a price limit that aligns with this goal.
By using game theory, you strategically align your choice of agent, price limit, and home selection to maximise your outcome while minimising risks and costs.
Sources
Using Game Theory if home selling agents are encouraged to perform or are taught egotistical behaviours how could they possibly collaborate to the benefit of the seller or the buyer. Would a third party like an advocate add value or not, if cost was the same or higher?
- Challenge of Collaboration Among Egotists
- Game Theory Insight: Game theory, particularly in the context of the Prisoner’s Dilemma, suggests that agents driven by self-interest or narcissistic traits are likely to act in their own best interest rather than collaborate. Narcissistic agents might prioritise their own success, seeking to maximise their commission or reputation rather than working together to achieve the best outcome for the seller or buyer.
- Outcome: This behaviour can lead to suboptimal results for the seller, as agents might undermine each other, compete destructively, or fail to communicate effectively. Instead of collaborating to achieve the highest possible price, agents might engage in tactics that benefit themselves at the seller’s expense.
- Role of a Third-Party Advocate
- Advocate’s Value: A third-party advocate could add significant value by mitigating the effects of narcissistic behaviour among agents. The advocate’s role would be to focus on the seller’s or buyer’s best interests, ensuring that the process remains objective and that all parties work towards a common goal.
- Game Theory Insight: The presence of an advocate can help establish a cooperative equilibrium by aligning the interests of all parties. The advocate can serve as a mediator, encouraging agents to collaborate effectively or at least prevent destructive competition.
- Cost Consideration: Even if the advocate’s cost is the same or higher, their ability to steer the process towards a more favourable outcome could justify the expense. The added value of having an advocate could be seen in achieving a higher sale price or securing better terms for the buyer, offering hope for improved results.
Conclusion
- Egotistical Agents: Likely to struggle with collaboration due to their self-centred approach, potentially leading to less favourable outcomes for sellers or buyers.
- Third-Party Advocate: This could add substantial value by fostering collaboration or at least managing the process to ensure that the seller’s or buyer’s interests are prioritised. Given their role in improving outcomes, the cost of an advocate could be justified.
Sources
There is scientific research that explores the impact of narcissistic and collaborative tendencies on performance, though not specifically focused on real estate agents. Studies on narcissistic behaviour, particularly in leadership and decision-making contexts, suggest that narcissists can exhibit both positive and negative traits depending on the situation. For instance, grandiose narcissists tend to have high self-confidence and a strong sense of agency, which can lead to decisive actions and high performance in competitive environments. However, these traits can also lead to impulsive decisions and a lack of consideration for others’ perspectives, which may hinder long-term success or collaborative efforts [1].
Conversely, collaboration is generally associated with better outcomes in complex environments where teamwork and collective decision-making are crucial. Collaborative individuals tend to be more effective in environments that require sustained relationships and mutual trust.
In summary, while narcissistic traits might contribute to short-term success in highly competitive or individualistic settings, collaborative tendencies are likely more beneficial for long-term success, especially in contexts where cooperation and trust are essential. However, the effectiveness of either trait may vary depending on the specific demands of the job and the environment.
Sources
When considering engaging a salesperson, real estate agent, or buyers/sellers advocate, there are several key points to consider, particularly when buying, selling, or doing both simultaneously. Game Theory can help clarify the potential outcomes of these decisions.
Key Points When Engaging an Agent or Advocate:
- Specialisation and Focus:
- Buyers’ Advocates: Specialize in finding properties and negotiating for buyers. They are focused on getting the best deal for the buyer and can leverage their market knowledge to identify opportunities that may not be publicly available.
- Sellers’ Agents: Focus on marketing and selling properties, aiming to achieve the highest possible sale price. They are skilled in positioning the property in the market and negotiating with buyers.
- Dual Agents: If you’re buying and selling simultaneously, engaging a dual agent who understands both sides of the transaction could offer a more streamlined process but may also introduce conflicts of interest.
- Negotiation Style:
- Aggressive vs. Collaborative: An experienced, assertive agent might push harder in negotiations, potentially securing better immediate outcomes. However, a collaborative agent can create win-win scenarios, which might be more beneficial in complex or high-stakes transactions.
- Market Knowledge and Strategy:
- Game Theory Application: In highly competitive markets (zero-sum games), an aggressive, self-assured agent might outperform by capitalising on quick decision-making and strong negotiation tactics. However, a collaborative approach may yield better overall results in more cooperative scenarios (non-zero-sum games), such as when both buyer and seller can benefit from a well-negotiated deal.
- Relationship Building:
- Long-Term vs. Short-Term Focus: Collaborative agents are often better at building relationships, which can be advantageous if you’re looking for long-term market engagement. However, for a one-time transaction, the aggressiveness of a self-assured agent might be more effective.
- Customisation and Adaptability:
- Tailored Strategies: Agents or advocates who adapt their strategies to your specific needs (e.g., selling quickly, maximising sale price, or finding a unique property) are likely to achieve better outcomes. The ability to pivot strategies based on market conditions or new information is crucial.
Does It Make a Difference?
- Outcome Variability: The choice between different types of agents or advocates can significantly impact the outcome. An agent’s negotiation style, market knowledge, and ability to adapt to the specifics of your situation can all lead to different results.
- Game Theory Perspective: Not all agents will achieve the same outcome because each agent’s strategy and the corresponding response from other market participants (buyers, sellers, other agents) will vary. For example, a collaborative agent might create a cooperative dynamic with a buyer that leads to a better final price, whereas an aggressive agent might maximise a sale in a competitive bidding scenario.
In conclusion, the selection of an agent or advocate should align with your specific goals, the market conditions, and the nature of the transaction. Game Theory suggests that different agents, using different strategies, can lead to varied outcomes—so the choice of agent or advocate does indeed make a difference.
Sources
Price Strategy
In real estate, the price you offer on a home can significantly influence the transaction’s outcome. Here’s how game theory helps in setting an optimal price:
- Competitive Market Dynamics:
- When multiple buyers are interested in the same property, each buyer must decide on an offer price. You might win the bid but overpay if your price is too high. If it’s too low, you risk losing the property to another buyer.
- Nash Equilibrium:
- This concept from game theory refers to a situation where all players (buyers in this case) choose their best strategy given the strategies of others. In the context of setting a price limit, you aim to reach a point where no buyer has an incentive to change their offer because they’ve optimized their chance of success without overcommitting financially.
- For example, you reach an equilibrium if you set a price high enough to be competitive but not so high that it exceeds the property’s market value. Other buyers may recognise that going above this price offers diminishing returns, so they also stick to their limits.
- Backward Induction:
- Another game theory concept that helps in setting a price. By starting from the desired outcome (securing the home within your budget), you work backward to determine the highest price you’re willing to offer that still aligns with your financial goals. This method considers what other buyers might do and helps you set a price that gives you a strong chance of winning without overpaying.
Practical Application
- Market Research: Use market data to understand the typical range of offers for similar properties. This helps in predicting the behaviour of other buyers.
- Psychological Factors: Consider how other buyers might react to your offer. Setting a slightly higher initial offer can discourage others from bidding aggressively.
- Adjustments: Be ready to adjust your price limit based on new information, such as the seller’s response or the emergence of additional competitors.
In essence, your price strategy should balance competitiveness with caution, ensuring that you neither overextend yourself nor miss out on the property due to an overly conservative bid.
Sources
- investopedia.com – Game Theory: A Comprehensive Guide
- investopedia.com – Nash Equilibrium: How It Works in Game Theory
- courses.lumenlearning.com – Reading: Game Theory | Microeconomics
Nash’s Equilibrium is a concept in game theory where all players in a scenario, such as real estate agents and buyers, choose their optimal strategies, and no player has anything to gain by changing their strategy unilaterally.
In the context of real estate pricing, Nash Equilibrium occurs when the agents set prices and the buyers make offers in such a way that neither the agents nor the buyers can improve their outcomes by changing their pricing or offers, assuming the other parties keep their strategies the same. This balance means that the market stabilises at a point where all parties are acting in their best interest, given the actions of others.
For instance, a real estate agent might set a price just high enough to attract the best offer without discouraging potential buyers, while buyers submit offers that reflect their maximum willingness to pay without overbidding.
Bought this week four months after it was found off market
Thought you may find it useful to see the interactions on 29 Mason St Hawthorn as opposed to the detail of each process we outlined in the 24 Maleela Balwyn Report in June
Game Theory (above) was used at key times on 29 Mason:
- Clients assessment of us on their hiring
- Our Rating report
- Our valuing and pricing
- Housekeeping Intensity
- Offer Timing
- Return Offer to other buyers initial offer
- Bidding Strategy during auction
The three agents involved used Game Theory on August 14.
Agent 1 made an offer of $5.1 million on a short settlement a few days into an auction campaign. His Game Theory decision was?
If he had offered his final amount, it could have represented a Nash Equilibrium, but the problem was?
We (Agent 2) responded with an offer amount before the Zoom bidding war, and that amount was based on Game Theory.
Scott (Agent 3) followed a particular set of decisions using Game Theory. He chose this way because?
First met our clients J&L in March
March 15: “Yes J&L we letterbox drop specific homes, we will start on the agreed list this week.”
April 9: “Mal and Sim this home came up on the internet, like the style, what are your thoughts? J&L”
April 11: “Mal thank you for being so upfront. Our previous buyer agent rated everything AAA. Lets pass on this.”
April 12: “Agreed J&L, this week we have focussed on Hawthorn West agents and letterboxing.”
The video on the April 9 home – we have removed names, pleasantries etc and identifiers as not sure it has sold
29 Mason pricing that we gave to our clients......very different from agent quote
April 16: “Hi J&L here is an off market – 29 Mason Street ……….. High $4m’s………land 725 sqm, north rear”
April 16:“Now you’re talking Sim, we walked past it and its a great spot, can we view?”
Coincidentally, behind the scenes, we were speaking to another agent, Chris Barrett, who was trying to get Mason to sell, but he lost the listing and helped us get in contact with the agent who won it – Scott. His text to Scott to the left – collaboration. Thank you Chris.
Scott said tenants need to be given notice and the owner wants to do some work and take to auction August.
We looked at more options, and ...... then ..... gold!
April to July: Over next few months we persisted with agent and letterboxed the area, targeting decent land sizes (33 letters), notes to J&L (>30) and looked at many homes (another 20).
July 29: “Kathy and Sim thank you for all your updates we are going back to the UK on Wednesday, can we please see Mason as we won’t be back till the day before the auction August 31st.”
July 29: “J&L confirmed. Monday 5th August at noon and Mal will meet you there.”
July 29: “Awesome Kathy and Sim and lets meet the following day before we fly out.”
August 5th: “Great home J&L, we need to get ready as this home will have interest despite its issues and somebody could well go early in the auction campaign, I doubt you will be at auction on the 31st – its too good and the quote is not where the final result will be. Mal”
10 days later on Wednesday of this week and four months after finding it..it was time!
August 14 afternoon:
Dear J&L
1. Further to our prep and meetings since you left: It’s on!!
2. Vendor still has to agree. Probably will and possibly it will be a zoom auction tonight.
3. Settlement will only be an issue if not much more than 5.1wins. It won’t win!
4. Competitor is represented by a buyer agent and sold —— in March to owner of vineyard next door. There —— is a developer in the area. This will be a fight.
5. Price – well someone else has already made the running in writing – so what we said about value has already been proven at the lowest of our levels.
6. Spoke to Luke – Pest and building inspector – your report will come. Summary one crack over a western window which looks an issue – it is not. House is well built – floorplan out back is crap and lift off roof and take down internals and maybe put up trusses for cheapest reno improvements. Feels a second story could go on if pillars out into concrete out back and feels a studio could go onto a garage out back – of course all STCA. Overall good house.
7. Neighbours and council all clear. Land measurements confirmed by measuring wheel v title
Speak on zoom soon.
Text from Scott to Mal in the first week of the auction OFIs
Clients in England........Auction in Australia
August 14 evening:
Dear J&L:
Lets get rid of any elephants.
1.We are paid the same on winning. We are talking you up to win not to get more.
2. Two advocates fighting and talking their buyers up. Bulldust. The other buyers live in the area and you know it very well. This is about you v the other buyer knowing how good this is.
3. So how are we going to win?
4. By understanding the true value of this home for your family long term. This position is as good as it gets for young professional families – it is a community. Thats it.
5. You are both intellectual enough to know when to stop. Emotionally is where you never give up.
6. Keep going – you know together we have done all the work – they are no doubts.
7. I know this is heavy – but this is why Phil suggested us. We can and will win if we believe and keep going. We will not lose our nerve in telling you to keep going.
8. Tomorrow you may well feel sick either way but in a few months you will feel incredible.
Thats it from me in the coaches box
Good luck, see you in a jiffy!
20 minutes later after a huge fight, the result was....BOUGHT
29 Mason – I love everything about Mason Street, having already bought properties for clients at 37, 35, and 69 Mason over the last 20 years.
Why?
Its position offers convenience and quick access to everything—schools accessible against traffic, the city and MCG just a tram ride away, a pleasant 10-minute walk to train, and only an additional 15 minutes to reach all most anywhere in the city via the loop.
Enjoy proximity to the river, cafes, and diverse shopping options from the eclectic Richmond to the traditional Hawthorn.
Why else?
The location is largely protected by a wealth of heritage—this is a positive aspect, except for the rear neighbour, making it nearly perfect.
Why else?
Village feel. You will feel safe, your children will feel good, as a family this is a forever location.
The Property?
The home sits well forward on the block, allowing for ample rear garden space which is currently well-utilized. The pool is in a good location; I would keep it as is.
The unsightly flats at the rear could be obscured by simply rebuilding the garage with a studio on top (STCA). For me, the side street is a benefit, not a drawback, for car access.
The building is a tale of two halves—poorly designed at the rear yet wonderfully assembled at the front. This dichotomy is beneficial in that it makes the property (hopefully) very affordable now and still livable—so take your time planning the next stage.
That stage could involve working with what’s there, but I think it would be better to add a grand living box like the one next door, though perhaps with a different feel depending on your taste.
This home is suitable for a renovation tailored for either a smaller, single-level family or a large and active teenage family. Regarding location—it suits everyone. It also works well for downsizers, offering a dream setup for older individuals seeking single-level living.
What’s wrong with the package? Nothing, if you like it. What needs to be done is obvious, known, and in many ways desirable.
Make it yours—you will never regret it. The only regret would be if you didn’t give it your best shot.
This location is as good as it gets for families just starting out and actually so is the home.
PostScript: August 15 Thursday evening
We had the absolute pleasure of working with Mal, Sim, and Kathy to secure our dream home at 29 Mason Street. After searching for 12 months with another agent without success, we found this team to be brilliant.
Their exceptional insight led them to identify the property six months before it hit the market, allowing us to prepare effectively. This invaluable intel, combined with their strategic advice, enabled us to secure the property at a price we were thrilled with.
J&L
Working Together Success
BALWYN Maleela Avenue > $9M
ELSTERNWICK Allison Road > $2M
KEW Sackville Street > $19M
CAMBERWELL Alma Road > $8M
SOUTH YARRA Ralston Street > $3M
HAWTHORN Scotch Hill > $16M
HAMPTON Bolton Avenue > $7M
PORT MELBOURNE Beach Street > $2M
HAWTHORN Hawthorn Grove > $8M
GLEN IRIS Fairview Grove > $7M
BRIGHTON Male Street > $5M
LYSTERFIELD Belgrave-Hallam Road > $3M
ST KILDA EAST Alexandra Street > $1M
HAWTHORN York Street > $2M
SORRENTO Point Nepean Road > $6M
GLEN IRIS Bella Vista Road $4M
CAMBERWELL Derby Street > $3M
KEW Evans Road > $5M
HAWTHORN Lyndhurst Crescent > $5M
Working Together to Help
