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When you move in with roommates, there always seems to be a smaller room, with no closet, ceiling fan, or flooring, that you have to walk through the kitchen and living room to get to the bathroom. And the other room has a fireplace, walk-in closet, flat-screen tv and jacuzzi inside of the bathroom.

What is the correct way to decide how much everyone pays?

I have done this a number of ways, all ending in disaster. There is no “right” way but here are some suggested way that might work out. Let’s use this example; a four bedroom house where all rooms are the same size:

Room 1: Private Bath

Room 2: Large closet

Room 3: Ceiling fan

Room 4: Views of the beach

1) Open bidding/auction system

Start with a room and start bidding on it. Highest winner gets the room. Move on to the next room until only one room is left, and that person pays the remainder.

Though this seems the most logical, it is the most unfair. The last room always has excess marginal benefit because of the nature of an open bidding system. So for example, if room 4 is highly desired, then the price is driven up and Room 3 (the least desired) can be acquired at an extremely low price. Let’s say Room 4 goes for $750, with Room 1 & 2 going for $500. That means that Room 3 pays $250. The person that moves into Room 3 would have paid an additional $150 more to live there. However, person who’s paying $750 wouldn’t pay $760 to live there so he/she is at the correct price point. Because there is a fixed ceiling or a maximum rent, the additional $150 should be split between all roommates so that everyone excess marginal benefit is the same. However, in an open bidding system, this is tough to account for.

2) Closed bidding system

Everyone writes down what they would pay for each room, and the highest bidder gets to room but pays the second highest bidder’s price. For example if I bid $750 for room 4, and the next highest bidder bid $650 for room 1, then I win the room and pay $650. If there is an deficit or surplus in the total bid price compared to the actual price, it is divided equally. For example, Room 4 goes for $650, Rooms 1 & 2 go for $400 and Room 3 goes for $350, equaling $1800. The total price is short $200, in which everyone would pay an additional $50.

3) Pricing the rooms and drawing straws.

This seems logical as well, but people have different preferences and place different values on certain amenities. I may value a view at $300 more a month while you may not.

4) Musical Rooms – switching rooms after “x” months

The biggest hassle and may seem the most fair, but this is the worst option. The point here is the maximize everyone utility and that is not done by forcing someone to pay for a convenience they otherwise would not have.

A close bidding system based on either proportions or dividing the deficit or surplus is the most confusing, but the most fair. All are suitable and trying to accommodate everyone’s preferences and price points is the best solution.

Good luck.