One of our Y Combinator batch mates from the summer of 2009 was a company called InstantQ, founded by Dana Levine and Jeff Shi. They were an early version of Groupon, allowing restaurants to fine tune pricing specific to certain customers, day of week, time of day, etc. At the time, Paul Graham called it High Resolution Pricing. I’ll confess, I didn’t get it back then – I just wanted discounted pizza.
Only later did I realize a meta-theme in PG’s philosophy on how the world was changing, even in the traditionally opaque world of fundraising. Markets are more efficient when prices can adjust to match supply and demand.
In the low resolution world, restaurants have a lunch menu and dinner menu. Vegas buffets have weekend and weekday prices. Unfortunately, some hours the restaurant is jam packed with a long line, while other times many seats are empty. Hotels figured this out a long time ago – higher resolution pricing, meaning the manager can zoom in and adjust the price every single day, based on upcoming demand, events, and seasonality.
High Resolution Pricing in Real Estate
Now we apply the high resolution tweaking to finding apartments for rent with a broker! In the low res world, landlords have all generally decided a broker will receive 1 month of OP.
Say an agents know she needs to show on average ten apartments to close a deal (honestly, for many price points it’s MUCH more). That’s a lot of appointments, time, and money gone to previewing, sourcing, and scheduling the tours. It’s even more frustrating when each showing requires a significant amount of travel and preparation.
In a high resolution world, the same agent realizes there is an incredible deal that won’t last the day. In fact, she is confident the first reasonable, qualified client who sees the listing would jump to take it. She could easily offer to rebate $500 to the renter as a vote of confidence that the apartment is worth seeing. What she loses on this deal, she makes up for in volume of deals closed.
Rebates can also help an agent specialize efficiently. An agent is more willing to show apartments in a neighborhood close to where they live. By becoming a neighborhood expert, it’s much less hassle for an agent to batch and group multiple clients for the same area in one day, and therefore they can deliver better service at lower “cost”, hence the OP rebate to the renter.
Editor’s Note: We updated this article to enhance readability.
