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Bargaining with your roommates
Joseph, a loyal MR reader, asks:
I recently leased my first apartment...with a friend who just graduated from college with me. It's a nice apartment, and spacious, but it has one bedroom that is larger and nicer (better views, bigger closet, more windows) than the other.
We're looking for the most equitable way to allot the good bedroom without resorting to cash transfers (too crass). We've come up with a few strategies so far:
1. Bid on the good room with chores (meaning the person who is willing to do the most domestic chores to compensate wins the auction and the room)
2. Best out of seven rocks-papers-scissors
2. Series of challenges submitted by close friends.
#1 seems like the best option we've come up with so far, but I'm afraid of winner's curse. I don't want a resentful roommate.
Do you think there's a better solution?
Adam, another reader, asks, in a separate email, how friendly roommates should allocate the rights to joint furniture purchases.
I suggest the crass cash transfers!!
Posted by Tyler Cowen on July 7, 2008 at 07:08 AM in Economics | Permalink
Comments
I have used a variation on #1 several times, that variation being a rent split that is not 50-50, but is prorated for size (including closets and/or private bathrooms). I've always found this to work pretty well actually.
Posted by: Tucker at Jul 7, 2008 7:26:13 AM
Definitely the crass cash transfers. It's like going to dinner with a friend, when one person has a salad and the other has steak. If different people have steak at each meal, you can use the it-all-evens-out approach. Otherwise, the steak-eater should pay more of the bill.
Posted by: Greg at Jul 7, 2008 7:29:23 AM
i would also go for a cash transfer. but maybe one of you should define how to split the money and the other one chooses the bedroom he will take.
Posted by: rtc at Jul 7, 2008 7:44:48 AM
i would also go for a cash transfer. but maybe one of you should define how to split the money and the other one chooses the bedroom he will take.
Posted by: rtc at Jul 7, 2008 7:45:02 AM
Trade rooms halfway through the lease. The only drawback is a little extra work, but it should only take a couple of hours. There are no cash transfers and you both get to enjoy the larger room. Most importantly, neither of roommate can argue that they got the shrot end of the stick.
Posted by: Steve R at Jul 7, 2008 7:59:26 AM
When I first moved into my current 2BR apartment with my then-roommate, we had this problem. One room is far bigger than the other.
Overall, though, it was a great apartment, and I had done all the legwork to find it and look at it (this is in Manhattan, after all, so it was the 20th place I looked at, and I only ever made him come see the good ones). Accordingly, we agreed to split rent 50/50 but that I would take the big room, but I also agreed to switch after 6-12 months (I can't remember which). That is NOT a good idea.
Neither of us ever wanted to go through the hassle of switching rooms (even though he had the small room he's lazier than I am). This could have led to a lot of tension, but in the end I did ALL of the chores and kept the apartment ticking. Eventually his girlfriend moved in as well, yet we continued with the 50/50 split.
Both of us were happy (He / his girlfriend had a subsidy and did very little work aroudn the apartment). I was compensated-in-kind for all of my efforts (whick I would have done anyway because I am a neatnick and he is not).
That's why I like option #1. It's essentially what we backed into. He would have known that he didn't want to bid up the auction to the point where he'd actually have to do the work (he knows himself very well), but then again I also knew I would be in for doing most of the work (because I know myself and him), so I would have been willing to bid it up anyway. He's shrewd and would try to get the best "deal" for taking the small room. I think our auction probably would have landed close to where our natural equilibrium turned out to be anyway. Maybe it wouldn't be so neat a deal with two roommates who are more similar, but luckily we were extremes and there were extreme rooms and we are both reasonable people, so our friendship still survives and I never gave up the big room.
The story ends even better. Over the course of the 4 years we lived together we both had big increases in our pay, and eventually they got married and moved out. I was able to take over the entire place!
Posted by: Erik at Jul 7, 2008 8:01:49 AM
It's a two-person pie game like rtc said, so it's pretty easy.
One person choose what they feel the right price difference would be ($600/$400? $550/$450?) and the other decides which room they want. Both consider it fair by design.
The switching halfway through the lease is a pain, and the 'extra chores' is annoying to keep track of and can cause resentfulness (how often should the kitchen be cleaned?)
Posted by: JB at Jul 7, 2008 8:26:22 AM
Split the rent 50/50 but have the person with the bigger room cover all of one of the (relatively stable) utilities to compensate.
Posted by: Amber at Jul 7, 2008 8:26:53 AM
I had friends in college that opted for #3. It resulted not in a single challenge but in a hilarious olympics hosted by their friends comprised of cooking, air guitar, wwf wrestling, and any other activity into which alcohol could somehow be incorporated.
Posted by: joe at Jul 7, 2008 8:47:07 AM
Split the rent proportionately to the size of the rooms - i.e. 55/45 or 60/40. And still split utilities and chores equally.
Posted by: Ellie at Jul 7, 2008 8:53:45 AM
Are you both economics majors? By asking the question, chances are you the more rational participant and the more concerned about getting screwed. If so, and you don't care, give the roommate the extra room and he'll probably pay you back way more out of reciprocation. Ask for a nominal favor in return. This isn't an arm's length business transaction. You don't want to end up even.
Posted by: Andrew at Jul 7, 2008 9:00:54 AM
When I was in school, we did it by sq ft (assuming amentities were approximately equal).
Total sq ft = common area + sum(personal areas)
share_i = (personal area + common area / N) / total sq ft
Then for bills that are a function of area (e.g., rent and heat), payment_i = bill * share_i
For items not a function of area (e.g., cable, water), it was just bill / N..
Adjustments could be made from there based on who supplied what to the common area.
Posted by: Jody at Jul 7, 2008 9:04:02 AM
A better way to divide the rent is for them to each indicate (in a sealed envelope) the additional share of the rent that they would be willing to pay per month to have the larger bedroom. Whoever indicated the higher number should get the room, at that price. That keeps the incentives aligned to identify their true WTP rather than inflating or deflating the numbers.
Sure, you could do it with chores, too, but I find that gets really tricky unless both roomates have an identical tolerance for mess.
Posted by: Jessica at Jul 7, 2008 9:12:23 AM
Auction off the rent by bidding on the better room. Let's start the opening bid for the better room at 51%.
Posted by: Erich at Jul 7, 2008 9:14:34 AM
I had the same problem in my apartment. I gave my roommate the bigger room because she brought in most of the furniture, dishes and the TV. We split the rent evenly so I was paying more per square foot than she was but still getting a certain level of utility from her stuff.
so, i would say if one person has a significantly larger amount of stuff for common use, they should take the big room.
It's an inexact system, but it worked well. crass cash transfers are probably the way to go. :)
Posted by: katiet at Jul 7, 2008 9:24:38 AM
RTC has the best answer, of course. This solution is cash-based, but ends up feeling less crass, because each person feels empowered -- either you get the room you choose or you get a discount you defined yourself.
In any case, the cost of the different rooms is far from the biggest challenge you may face. Your post gives me a strange negative-utopian style nostalgia for my years in a run-down group house east of Dupont Circle in DC. Things that may matter to you more than the price gradient on room size -- the falling top-floor ceiling plaster over your bed, leaking in the rainstorm; the cockroaches; the police at the door mid-way through the party; the immense hulking bully of a boyfriend who takes up with one roomate, and who plants himself at the kitchen table making snide comments while you do chores; one roommate's tiny top-floor room (for which he paid a discounted rent) with a tall wooden bunk-bed that must have been located just four inches from the wall, and which, when he acquired a new lover, banged in a steady rhythm against the wall causing the whole cavernous middle of the old three story row-house to resonate like a loud drum at any time of day or night. Well, it might not all happen to you.
Posted by: Parke at Jul 7, 2008 9:26:24 AM
Tyler is right.
Don't confuse the nature of the relationship as this will lead to bad feelings in the long run.
Posted by: josh at Jul 7, 2008 9:26:26 AM
What if the one who wins the larger rooms eventually stops doing the chores (or at least allows his performance on each to lapse)? What is the enforcement mechanism? A one time cash transfer would eliminate this problem.
Posted by: Billy at Jul 7, 2008 10:00:04 AM
Can we backpedal a bit and try to find out exactly why this individual considers cash negotiation to be "crass"?
Posted by: KipEsquire at Jul 7, 2008 10:06:12 AM
Cash. Any other way, and resentment will creep in.
Posted by: cash at Jul 7, 2008 10:17:26 AM
+1 for the one person divide, the other person pick. It's actually generalizable into any number of picks: http://en.wikipedia.org/wiki/Envy-free
Of course, the hidden assumption is rationality. If one person says that they should get the larger room and pay the same because, for example, the other person spends time at his girlfriend's house, then you have a problem unsolvable by logic.
Posted by: A Berman at Jul 7, 2008 10:34:16 AM
Isn't this standard auction theory? Each party writes down what they view as the fairest number for the division of the rent. The one who values the bigger room the most gets it at the second person's price. Problem solved. I see Jessica 9:12 has the same inclination. I agree with her that chores are a bad allocation method: too much possibility for gamesmanship and hard to enforce.
Posted by: Ted at Jul 7, 2008 10:35:03 AM
Why are cash transfers crass? Have each person bid on the share of rent that they feel is fait. I like RTC's suggestion or the utility selection. I had it easy when I lived with my roommates, I got the small bedroom, but I also got my own bathroom.
Posted by: Mo at Jul 7, 2008 10:36:58 AM
How about each roommate submitting a sealed bid for the split %age that they would pay and the one who bids the higher %age gets it. For example, roommate A bids 55%/45% while the other bids 53%/47%, then roommate A gets it for what each roommate considers a fair price.
Posted by: notkevinnealon at Jul 7, 2008 10:37:03 AM
I faced this in my first New York apartment. We had a two-year lease; we each paid half the rent, my roommate took the big room initially, and we agreed to either switch or negotiate at the half-way point. Advantages over up-front transfers: by a year later, endowment effects (and costs of switching) mean whoever's in the bigger room will probably value it more, making it easy to find a mutually agreeable cash transfer; plus, that transfer feels like "found money" at that point (I used it to buy a better stereo for our living room).
Posted by: Dan at Jul 7, 2008 10:40:55 AM
