We’ve got a column appearing in the June 10 issue of the New York Times Magazine, which is a special issue on the U.S. wealth divide. Our piece deals with some interesting new research on real-estate sales (more on this later today).
I know what you’re thinking: more Realtor bashing! Well, no. Even though we’ve written various things about the imperfection of the Realtor’s commission model, this column takes a somewhat different tack.
But if we had wanted to write a really good column about Realtor commissions, we would have been wise to base it on this draft paper by the economists Igal Hendel, Aviv Nevo, and Francois Ortalo-Magne. It’s called “The Relative Performance of Real Estate Marketing Plaforms: MLS versus FSBO.Madison.com,” and it aims to assess the value of a Realtor’s contribution by measuring the sale price of homes sold by Realtors and those sold directly by owners. Jeff Bailey has a good writeup on about the study in today’s N.Y. Times.
While we sketched out a similar argument here, their paper puts the argument to a large empirical test. They cite the National Association of Realtors’ claim that using a Realtor brings sellers a significantly higher price, even after controlling for differences in house and seller characteristics. But that is not what they found in the data:
Controlling for differences in house and seller characteristics we find that listing on the MLS does not yield a price premium relative to listing on FSBOMadison.com. This is not to say that using a Realtor is not worth the commission. Realtors can save sellers time and generally help through a stressful and maybe difficult period.
The authors are careful to say that their findings are based on an unusually successful for-sale-by-owner site in Madison, Wisc., which handles the sale of roughly 1/4 of all homes in the area. So this makes it harder to generalize their findings.
But the paper supports the argument that, unless you’re the kind of person who needs a little help through a “stressful and maybe difficult period,” and unless you’re unwilling to wait a little longer to sell your house, then the commission that you pay your Realtor is in essence a big fat tip.
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Reducing the value of a service to a competitive cost model would be OK if the services were similar. Allowing the phrase “marketing platform” to represent the entire service creates difficulties for me.
In my twenty something years of experience, there were a substantial number of persons engaging in dealing (ie, making a living from buying and selling) who were in the FSBO environment and who took unfair advantage of the average buyer as a matter of common practice. FSBO sales routinely do not go according to a rational plan. Sellers and banks in particular often do things that are incredibly selfish and coercive.
Engineers, lawyers, contractors, Realtors, and pest inspectors all can have vital roles from time to time. Each party to a sale can and should have advocates. Comparing an unbundled service model with a bundled one is unrealistic.
Reducing the value of a service to a competitive cost model would be OK if the services were similar. Allowing the phrase “marketing platform” to represent the entire service creates difficulties for me.
In my twenty something years of experience, there were a substantial number of persons engaging in dealing (ie, making a living from buying and selling) who were in the FSBO environment and who took unfair advantage of the average buyer as a matter of common practice. FSBO sales routinely do not go according to a rational plan. Sellers and banks in particular often do things that are incredibly selfish and coercive.
Engineers, lawyers, contractors, Realtors, and pest inspectors all can have vital roles from time to time. Each party to a sale can and should have advocates. Comparing an unbundled service model with a bundled one is unrealistic.
When the market was hot, successful FSBOs were much more likely. When the market was hot, escrows were easier – after all, buyers were hesitant to ask for repairs when a line of backup buyers were in placed.
In the buyer’s market we’re experiencing nationwide right now, a good Realtor (i.e. one who knows how to market a home to buyers AND more importantly other Realtors and is a seasoned negotiator) is worth every penny.
FSBOs remind me of gamblers – most only brag about their wins, you don’t hear about their losses. Over 90% of FSBOs end up hiring a Realtor to sell their home.
When the market was hot, successful FSBOs were much more likely. When the market was hot, escrows were easier – after all, buyers were hesitant to ask for repairs when a line of backup buyers were in placed.
In the buyer’s market we’re experiencing nationwide right now, a good Realtor (i.e. one who knows how to market a home to buyers AND more importantly other Realtors and is a seasoned negotiator) is worth every penny.
FSBOs remind me of gamblers – most only brag about their wins, you don’t hear about their losses. Over 90% of FSBOs end up hiring a Realtor to sell their home.
Living in the Madison area, the FSBO draw is amazingly strong. While not as popular with the down turn in the market (as well as more recent competition from other FSBO and Flat Fee MLS companies) – the site still has a large number of homes for sale (upwards of 650 ads vs ~3000 listings in the MLS).
And while BATTINGYOUHOME notes that 90% of the FSBOs end up hiring a realor nationally (or conversely a 10% success rate), I believe that in the Madison area it is only a 25% turnover rate (i.e. 75% sell their home themselves).
I certainly can’t explain the trend here, but it is popular…
Living in the Madison area, the FSBO draw is amazingly strong. While not as popular with the down turn in the market (as well as more recent competition from other FSBO and Flat Fee MLS companies) – the site still has a large number of homes for sale (upwards of 650 ads vs ~3000 listings in the MLS).
And while BATTINGYOUHOME notes that 90% of the FSBOs end up hiring a realor nationally (or conversely a 10% success rate), I believe that in the Madison area it is only a 25% turnover rate (i.e. 75% sell their home themselves).
I certainly can’t explain the trend here, but it is popular…
Jason,
First, the Madison market is an anomaly (love the city, by the way). The proof of the pudding is whether 1) other areas and replicate the success of the Madison FSBO market and 2) is it sustainable in Madison now that the market is weaker. My guess is that the answer to the first point is ‘no’ and the second point is ‘probably’.
For full disclosure, you might want to mention that you have a stake in the outcome (your FSBO/mls site – which is pretty cool).
Jason,
First, the Madison market is an anomaly (love the city, by the way). The proof of the pudding is whether 1) other areas and replicate the success of the Madison FSBO market and 2) is it sustainable in Madison now that the market is weaker. My guess is that the answer to the first point is ‘no’ and the second point is ‘probably’.
For full disclosure, you might want to mention that you have a stake in the outcome (your FSBO/mls site – which is pretty cool).