The National Association of Realtors has started a blog. The lead item today is headlined “The Cost of Selling without a REALTOR®: $31,800.” Pretty scary, huh? Here’s the lead: “Real estate professionals do more for sellers than make the transaction easier. They make them money. In fact, the average seller who uses a real estate professional makes 16 percent more on the sale of their home than do sellers who go it alone. That’s an average of $31,800 per home.” Unfortunately, there’s no supporting data. So it could be that a Realtor actually brings in, on average, $31,800 more per home sale. Or it could be that a few dozen, or few hundred, or few thousand Realtor-sold multimillion-dollar homes skews the average very high compared to FSBO’s, which tend to be cheaper. Or it could be a few dozen other factors.
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It could also be true for the wrong reasons. In hot markets realtors routinely overprice properties and offer seller contributions, to closing costs, improvements, etc. in order to boost the price of homes and gain higher ‘comps’. It’s also interesting that realtors must disclose why a house sold undermarket (usually significantly below) so that other realtors know to ignore that sale in comps.
That is not to say realtors don’t provide real value. There is something to be said to have a professional marketing a house if that person is competent and uses all the knowledge and resources at their disposal, as well as a bag of tricks. But I believe it’s a little closer to break even.
Remember that realtors don’t always make money on every effort. They can have the rug pulled under them by the people who hire them by having realtors compete against each other or doing a FSBO behind the scenes. That can lead to alot of wasted time.
In jest, you can probably have Apple market homes calling them iPod accessories and summarily raise retail prices by 20% or more.
— kkwanA real estate agent can raise the price of a $200 thousand dollar home by more than $30,000? As just a gut check, that sounds absurd. The real estate market isn’t completely efficient, but darn, this is so wild that the NAR should get into the business of buying FSBOs and reselling them. I’ll even through some venture capital in if they can prove those numbers!
— kramsauerWow. So I definitely shouldn’t BUY a house if it’s represented by a realtor!
— grazIt’s possible these stats might be accurate, merely reflecting selection bias. I suspect the cross-section of people who choose to sell themselves is skewed toward lower-priced homes.
Imagine the modestly-priced home owner who knows or strongly suspects he’ll lose money (or not make much). He might opt to sell it himself.
Now imagine the other end of the distribution: What’s the likelihood that the owner of a multi-million dollar home will really take the time to sell it herself?
— TMAI talked to the author of this study at the National Association of Realtors and it was based on a survey return from 155,000 mailings. The returns totalled 7400. The criteria was a sold, single famiy,detached home in the suburbs. embarrassed REALTOR.
— leonardWouldn’t a real study be stunningly easy to do? (1) there is usually an assessed value on the tax rolls, which are public information so people can compare assessments. Do this within an appropriate governmental unit so systematic variations in assessment don’t apply (2) house is sold either by a realto or not, which may be part of the publically available closing info (or may not, but would be easy to get by phone survey). One covariance analysis later and you’re done, and published!
Replicate this for 3115 US counties, publish each one, and sit back and enjoy that tenure — maybe even a chair endowed by a grateful real estate industry![*]
In fact, such a design is SO simple that one suspects that the results don’t provide much support to this.
[*]Some poetic license taken on this.
— zbicyclistThese number seem even more insane when you factor in savings on commissions that FSBO sellers recieve. Worst case scenario an FSBO seller would have to pay for the buyers agent commission which would cost them 3%. In this case they are still saving around 3% on commissions. Thats $6k on a $200k home. Most likely they aren’t figuring in these commissions into their 16%, but the way they word it sounds like a seller makes 16% more on the Net, not just the gross. By the way, I tried to comment on that article with some of these questions and they havent approved it yet. Wonder why? Doesn’t seem like much of a blog.
— ErockenjewIs NAR right? I don’t know, but I doubt it in relation to the maret I worked in. I used to be a member of NAR, but I’ve not suported all NAR initiatives over the years anyway….
As a former REALTOR in the Washington DC suburban market between 1986 and 2005 who saw 2 x upswings (1987/90 + 2000/2005)) and 2 downturns in that market (1991-97 and now, post-2005), I’d say this:
1. Up-turning markets:
Most Realtors don’t overprice homes, sellers insist on it, Realtors say, “Well ok, let’s see what the market will bear”, and buyers go along, i.e. they are willing to “bid” for a good piece of property above what is “reasonable”. Once they’ve done it, the next buyer faces the same problem at the next highest level.
(I saw very few really overpriced properties in 2000-2005; if they were, buyers we not idiots, and they didn’t sell till reduced).
(Don’t agree with KKWAN above: no Realtor would suggest offering closing costs in the last crazy DC Area market: they did’t have to. BUYERS paid all the closing costs because that’s what the market demanded, and good Realtors advised their clients that it was crazy to ask for them if they were in competition with 5 or 6 othr offers…..)
Where did FSBOs stand? Well, they knew prices received by their neighbors and, if their homes were in as good shape, they got what they asked. Most “listed”, paid 2.5% to a buyer’s agent and “whatever” to the listing broker (as little as $400). They “saved” only that portion of the listing side by having MLS exposure, getting buyer’s agents through the house, and selling it in record time.
Even if they didn’t “list”, most were ultimately willing to pay the 2.5% to 3.0% to the broker anyway. I did several that way. The seller got the market value.
THIS IS NO DIFFEENT FROM LISTING WITH A FULL-SERVICE, FULL-PRICE BROKER except that it involves a bit more work…..
Saving $31,000 - NO WAY.
2. Downward-turning markets:
NOW - HERE is where things are very different…. Inventory increases (as it is doing today almost everywhere); buyers have choices and don’t need to consider “unrealstic” FSBO sellers; FSBO sellers don’t have the same advantage and often overprice through ignorance, or if they list with cut-price brokers who’ve received their fee upfront, they don’t get the real world advice they need.
So, now: FSBOs may have to reduce their price; they’ve not received the objective advice of an agent as to what to do to upgrade/improve/just “tart up” in order to get top price (buyers now care and compare…), etc.
FSBOs now lack exposure to buyers, especially if they won’t pay brokers a red cent - and brokers just drive on by ‘cos “there’s plenty to see today, Mr Buyer, and those people are way overpriced and won’t see reason, so there’s no [point in bothering them”…
NOW: do you get the point of the NAR position?? Whther it is $31,000 or $5,000 they make their point.
But, in truth, it wouldn’t be too difficult for NAR to cross-reference the county tax data on homes sold against the Realtors’ MLS and see which sold “by owner” versus with brokers.
THEN we could get some “real data” for several markets.
THIS is the time for this kind of thing to be done as the country goes through a significant change in demand, prices, interest rates, etc… Happily, I now stand on the sidelines: I’m retired.
— VivaVerdiIf anybody wants to do that study, I would suggest Madison, Wisconsin. As discussed previously on these pixels, it has an active FSBO segment. It also has a professional tax assessment system that updates values publicly and annually. Identify equal blocs of FSBO and Realtor(R) sales — easy to do from publicly available information — obtain as many closing statements as possible, and analyze away.
— Ken D.isn’t there a certain amount of security in having a realtor. (no, i am not one, nor am i related or married to one). The asymetrical information issue alone worries me when i buy or sell a property. A realtor, as a buyers agent, has to by law keep the buyer informed. They can do the research on related properties, provide information about the area, etc. that takes too much time to research alone. Yes, the 6% is substantial, but couldn’t one argue that buyers and sellers do not ask for their 6% worth of services. I know I try to get my pound of flesh out of them whenever I buy or sell a house.
— econetti37What does bother me though is the industry standard of 6%. What happened to competition? Whenever I ask for a rate lower than 6%, they balk, bristle, and refuse to budge. In that case, get your money’s worth.
It takes 25 hours to sell a home, 12 hours dosen’t require a license. Do the math.
— leonardOther than using surveys, it is practically impossible to do the evaluations suggested in some of the responses.
Using tax assessments is futile in most places because the assessments have a high rate of major error. Secondly, sale prices are NOT recorded by the county clerk… only the amount of the mortgage, if any. Realtors record the sale price on the MLS, but more and more often, local associations are refusing to allow county access to this information because it usually creates an unfair balance in assessments; recently sold properties are taxes much higher than similar properties which have not recently sold. Here, Realtors are forcing the tax authorities to do their jobs, and provide a fair system to all property owners.
In closing, econetti37, one benefit Realtors bring to the table that is not commonly discussed is the fact thay they are usually insured and bonded, so that if a client suffers a loss due to errors, there is recourse from the state or the insurance company. FSBO transaction have zero protection. One other benefit Realtors bring is the expansion of demand for a property. Yes, greater exposure brings greater demand, and therefore, the potential for a more successful sale. This is simple economics,,,, I wonder why the freakonomics people can’t fathom that concept. Maybe they do fathom it but knowledge these days doesn’t sell as well as disinformation.
Love to all.
— REsourceOne interesting factoid that I previously came across in my blogging should be added to this discussion:
“Ortalo-Magne is researching the differences between MLS and FSBOMadison listings. Preliminary findings indicated that owners of expensive homes seem to gravitate toward FSBOMadison, he said.”
As suggest by Ken above, this information apparently does come from Madison, WI. And to my surprise it does not discredit the NAR study by indicating that FSBO home prices are lower then MLS listed homes.
— milancoleThe 16% figure probably comes from a National Association of Realtor’s study which found that the median 2005 sales price for a home that was sold by an agent was $230,000, compared to only $198,200 for a FSBO home.
While $230,000 is about 16% higher than $198,200, it doesn’t follow that hiring an agent will boost a home’s sales price by 16%.
There are many possible reasons that FSBO prices are relatively low. One is that FSBO properties include a disproportionate number of mobile homes and manufactured homes, which usually sell for less than detached single-family homes.
— econoclast