Bargaining with your roommates

by on July 7, 2008 at 7:08 am in Economics | Permalink

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!!

1 Tucker July 7, 2008 at 7:26 am

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.

2 rtc July 7, 2008 at 7:44 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.

3 Steve R July 7, 2008 at 7:59 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.

4 JB July 7, 2008 at 8:26 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?)

5 joe July 7, 2008 at 8:47 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.

6 Andrew July 7, 2008 at 9:00 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.

7 Jessica July 7, 2008 at 9:12 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.

8 katiet July 7, 2008 at 9:24 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. 🙂

9 josh July 7, 2008 at 9:26 am

Tyler is right.

Don’t confuse the nature of the relationship as this will lead to bad feelings in the long run.

10 KipEsquire July 7, 2008 at 10:06 am

Can we backpedal a bit and try to find out exactly why this individual considers cash negotiation to be “crass”?

11 A Berman July 7, 2008 at 10:34 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.

12 Mo July 7, 2008 at 10:36 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.

13 Dan July 7, 2008 at 10:40 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).

14 Anonymous July 7, 2008 at 10:42 am

I know some people who worked on the rule: The one who did the search and all the work to find the apartment got the first pick of bedroom.

15 Lee July 7, 2008 at 11:03 am

Definitely go cash transfer, for one big reason. You may feel that any of the three scenarios you listed makes great sense and allows you to feel totally equitable in your division of the apartment, but if/when one of you chooses to leave the apartment and find a subletter (a situation that’s more likely than you may think), it’s going to be much to your benefit to already have a logical system of rent division in place and to sublet based on that system. After all, you’re not going to want to have to redo your series of challenges with your new apartment-mate if your old one leaves.

16 Nemo July 7, 2008 at 11:41 am

I once shared a house with three roommates and VERY different size rooms. We used the following algorithm:

1) Initial condition. Sit around a table and make a random nominal room assignment with equal rents.

2) Go around the table. When it is your turn, you may “trade places” with anyone by offering more for their room than they are currently paying, giving them the corresponding savings on what you are paying (but shoving them in your room). Of course, you also have the option of “passing”, keeping your current room and rent.

3) Repeat until everyone passes.

This algorithm has the disadvantage that it might not converge… But if it does converge, it has the advantage of being strictly “fair”, in the sense that everyone believes he got at least as good a deal as anybody else.

None of us considered this “crass”. And I got the cheapest rent I ever paid in my life. Crappiest room, too, but that was OK.

17 Jolly Bloger July 7, 2008 at 12:27 pm

I was in the same situation with my roommates. Cash transfers are working beautifully. We based the proportional rent on the area of the rooms.

18 Samir Nurmohamed July 7, 2008 at 12:44 pm

I had 3 other roommates. First, we decided the rents based on the sq. footage plus the “quality” of the rooms (2 of the rooms were upstairs; the other 2 were in the basement). We then drew straws to determine who gets first, second, etc. choice for which room they wanted.

19 Colin Fraizer July 7, 2008 at 1:32 pm

I also vote for the crass cash transfers.

More importantly, I’d like to know what actions reader Adam has taken to show his disloyalty?

20 sidereal July 7, 2008 at 2:21 pm

You’re all crass and none of you are welcome to be my roommate.

I was in the same position just out of college (1 apartment, bedroom size split of ~60/40%). The resolution was to alternate rooms every 6 months. This had the secondary benefit of forcing a regular room reset, which tends to get rid of a lot of junk and encourage experimentation.

21 David July 7, 2008 at 2:47 pm

This reminds me of the time I stayed in a hotel room with two friends: one Republican & one Democrat. The room had only two beds and we were left with the dilemma of who wouldn’t have to share a bed. I, the libertarian, suggested an auction for the solo bed. After explaining how the auction would be conducted, the other two said, “That’s too complicated. Just take the bed yourself.” Conclusion: the market works.

22 T. Fry July 7, 2008 at 3:19 pm

Another approach would be for each party to to disclose under penalty of perjury and jail time how much wealth and income each person has and then give the better bedroom to the person with fewer resources. This is called the modern day U.S. Congress approach. If wealth cannot be determined, other metrics to use could include SAT scores, each other’s race or ethnicity (with the member with the lowest scores or belonging to the most oppressed group getting the better room), etc.

If you like this solution you really need to read Marginal Revolution more.

23 diz July 7, 2008 at 3:47 pm

Having tackled this same problem with 4 roommates/4 rooms in a house once, we jointly agreed to a rent for each room and then randomly selected a draft order. The person who picked first could pick the room/price combo of his choice.

24 Mike July 7, 2008 at 4:52 pm

GO WITH THE AUCTION! Like other people have said, any other way will likely result in resentfulness. This worked well for me the past year with my roommate. I got the slightly smaller room that had worse ‘feng shui’ but paid less in rent. We also auctioned off our single parking space so then I paid a bit more but still less than half.

Now I’m about to move in to a house with 5 other guys from my fraternity! As the lone economics major I tried to implement a similar system, people rejected it because talking money is ‘crass’, and we resorted to other means to allocate rooms. And of course it was a bloody mess! It all involved silly things like seniority, who ‘needed’ the room more, who was most involved in the fraternity. It’s difficult to compare all those intangibles. People just got angry and it was way more difficult to figure out. Hopefully people won’t be resentful during the year but I wouldn’t be surprised if it comes up.

25 Mike July 7, 2008 at 7:11 pm

Rock, paper, scissors…accept it…move on.

What if one’s roommate showers at the gym…eats out more…doesn’t watch a lot of television….should one pay less with regard to utilities? It’s a slippery slope.

26 EnlightenedDuck July 7, 2008 at 9:00 pm

I’ve been in a number of shared-room situations. How were they split?

5 guys, three rooms, one larger. Even rent/person. We were close friends, so no resentment, but I wouldn’t recommend it.

4 guys, three rooms. The two in one room got first choice of rooms, and a discounted rent (Basically 3/2/2 per room, with some slight complications).

6 people, 6 unique rooms. Price determined for each room, then room preferences filled out. Do the best to give everybody a room they wanted, resolve ties with coin flips.

2 people, 2 uneven rooms. Price the rooms, then agree upon who got which room. We had uneven budgets, so I priced the larger room slightly higher than I needed to get it and make sure my roommate was happy.

In general? Agree on room prices, and choose from there. When in doubt, whoever found the place should get first choice (that is the bonus for doing the legwork). If you are with people that want everybody to be happy, consensus is pretty easy to reach on these things. Watch your back if it isn’t…

27 David July 7, 2008 at 10:50 pm

I had this situation in one share house. The deal was that the person with the (hugely) bigger room than everyone else would be solely responsible for cleaning the house. She acquitted this by paying for a cleaner so it was equivalent to a cash transfer but arguably less crass.

28 winston July 7, 2008 at 11:17 pm

Flip a coin and be done with it.

29 Ben July 8, 2008 at 8:20 am

Why not have a blind auction for the room? You both write down how much you’re willing to pay for the big room and reveal at the same time. The biggest bid wins.

30 Peter July 8, 2008 at 12:09 pm

Crass cash could be made to appear less crass if the cash were used to pay for fixed utility bills such as cable tv or broadband internet.

31 Ian July 8, 2008 at 7:11 pm

I’ve used method #2. Since I was in another province at the time, my roommates and I had to play rock-paper scissors over the phone.

When there is a sufficiently high level of mutual respect, financial incentives look crass because they are the wrong kind of incentives.

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