How Much Is a Realtor Worth?

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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  1. elisharene says:

    True, agents may not bring in a larger sale, but they do usually save time and limit hassles. Is it worth the commission? Depends. How valuable is your time?

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  2. elisharene says:

    True, agents may not bring in a larger sale, but they do usually save time and limit hassles. Is it worth the commission? Depends. How valuable is your time?

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  3. jdshipley says:

    Can this “unusually successful” FSBO site be duplicated? Yes? Then this is a slow fuse burning through the real estate industry.

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  4. jdshipley says:

    Can this “unusually successful” FSBO site be duplicated? Yes? Then this is a slow fuse burning through the real estate industry.

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  5. dufless says:

    In the NYT Article it mentioned:
    “Like many FSBO sellers, Dr. Sharata said he would gladly pay an agent representing the buyer a 3 percent fee, or $19,470 at his asking price, but felt little need for an agent’s help in selling.”

    Was this 3% fee paid by FSBO sellers factored into the final price?

    Also in the article it said:
    “On average, it took FSBO homes 125 days to sell and agent-sold homes 105 days. A faster sale, of course, can save money on mortgage payments, taxes and insurance, the economists noted.”

    What that amount factored into the final price?

    I recently sold my home through craigslist. It took a month longer than it took my neighbor, and I ended up paying the buyers agent commission. If you calculate the extra month of mortgage I paid, my neighbor ended up with a better deal, after paying the full commission.

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  6. dufless says:

    In the NYT Article it mentioned:
    “Like many FSBO sellers, Dr. Sharata said he would gladly pay an agent representing the buyer a 3 percent fee, or $19,470 at his asking price, but felt little need for an agent’s help in selling.”

    Was this 3% fee paid by FSBO sellers factored into the final price?

    Also in the article it said:
    “On average, it took FSBO homes 125 days to sell and agent-sold homes 105 days. A faster sale, of course, can save money on mortgage payments, taxes and insurance, the economists noted.”

    What that amount factored into the final price?

    I recently sold my home through craigslist. It took a month longer than it took my neighbor, and I ended up paying the buyers agent commission. If you calculate the extra month of mortgage I paid, my neighbor ended up with a better deal, after paying the full commission.

    Thumb up 0 Thumb down 0
  7. dufless says:

    One more point, the article also mentioned:
    “The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed.”

    I think their study of the slowdown will show that trying to sell a house now via FSBO is ridiculously hard. Just look at craigslist these days, there are so many houses out there, that its impossible to sell via that route. My sister put her house on craigslist, and reposted the ad every two days for two weeks, yet didn’t even get one interested e-mail. All she ended up getting were e-mails from title companies trying to get her business.

    Fat Tip? Hardly. Your blog posting, managed to make a conclusion without looking into the actual details.

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  8. dufless says:

    One more point, the article also mentioned:
    “The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed.”

    I think their study of the slowdown will show that trying to sell a house now via FSBO is ridiculously hard. Just look at craigslist these days, there are so many houses out there, that its impossible to sell via that route. My sister put her house on craigslist, and reposted the ad every two days for two weeks, yet didn’t even get one interested e-mail. All she ended up getting were e-mails from title companies trying to get her business.

    Fat Tip? Hardly. Your blog posting, managed to make a conclusion without looking into the actual details.

    Thumb up 0 Thumb down 0