Real Estate Agents, Revisited

Still skeptical (even after evidence like this) about Levitt and Dubner’s conclusion in Freakonomics that having a real estate agent sell your home won’t necessarily result in a higher sale price? Stanford economist B. Douglas Bernheim and Stanford grad student Jonathan Meer provide further evidence in their working paper, “How Much Value Do Real Estate Brokers Add? A Case Study.” Their findings are described as follows:

Sales commissions for residential real estate brokers historically average nearly six percent of a home’s closing price. Do brokers add sufficient value to justify those commissions? We address this question using a unique data set pertaining to sales of faculty and staff homes on the Stanford University campus. We find no evidence that the use of a broker leads to higher average selling prices, or that it significantly alters average initial asking prices. However, those who use brokers sell their houses more quickly.

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  1. Rachael says:

    As far as I understand it, the point of having an agent is not to get a higher sale price, but to sell at all. Maybe it’s different in the US, but here in the UK you practically never see houses for sale without an agent, and if there were any, I think buyers would be sceptical about them because it’s so unfamiliar.

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  2. Craig says:

    My wife and I were trying to sell our Florida house just as the glut of up-for-sale houses came on the market. Potential buyers came and went; all liked it, but none made an offer: there were plenty to choose from and many were more desirable due to layout (we were already priced lower than most competitors). It was because of our agent’s contacts that we eventually found a serious buyer, and that enabled us to sell within the tight timeframe that we required. We obviously didn’t get the top net dollar but I think it was well worth it.

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  3. Kris says:

    Smart buyers have access to much of the sane information that agents would have, thanks to the internet. I’m young and naive, but from my perspective the real estate industry only exists by maintaining a certain aura of ignorance for buyers and artificially inflating the value of homes and property. They get a cut every time someone buys or sells a house, so they benefit from higher prices, not lower ones as a buyer would. This can’t go on forever in the zillow + craigslist age.

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    • Leslie says:

      Yes, you are very naive. Do you really think we make that much more by jacking up a sales price by $10,000? The price would have to go up 5 to 10 times that for it to make much of a difference in a commission check and that just isn’t possible. You obviously aren’t aware that a broker can take as much as 50% of a commission. Get out in the real world and stop making uneducated guesses from your dorm room.

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  4. Steven says:

    It does not make sense to me that with the rise in real estate prices some years ago, the percentages the realtors take stayed the same. For the exact job in 2004 than in 2000, a realtor could earn more than double the profits. It is tough to justify spending $20,000 to sell a $330,000 house — especially when some years earlier it would have cost only $10,000. Was there really $10,000 worth of additional work being performed?

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    • mike says:

      the 10k commission doubled and so did the larger number (their home value). An agent can best find a large pool of buyers, the market sets the price. If you want to top dollar, you better have a nice home in excellent condiiton.

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    • Kitty says:

      Selling a property isn’t a weekend gig. Buyers have different schedules and the property should have a representative available to facilitate the sale day and night, Saturdays and Sundays.
      If the property isn’t available to view…on to the next.
      Perhaps consider viewing commission from another perspective – think of how much it would cost a Vendor to sell a home if he/she were billed for a Realtor’s time, time spent on MLS and time frame listed on the market, all incoming calls regarding the property, incoming emails, emails composed and sent, appointments booked, appointments confirmed, appointments cancelled, follow up calls to other Realtors, follow up calls to prospective Buyers, public open house, agent open house, private showings by the Realtor, photographs of the property, updating websites, feature sheets, flyers, advertising, signage and travel time. Also, every question, phone call, email, text message or query a Seller would make to the Realtor regarding the sale (all evening questions, calls and texts, would be billed at the premium rate).
      What if the property doesn’t sell for several months, what if the property doesn’t sell? The Vendor would continue to be billed during that time. Don’t forget the security of having a Realtor present during private showings and the open house (s).
      Without a Realtor, will strangers stroll through your home, with children present? Who will watch the children while the property is being shown? Will the seller be alone while strangers view because the partener/spouse is with the children?
      Some points to consider….

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  5. Chris Hansen says:

    Your real estate agent’s main incentive is her 6%, i.e., to get your house sold as soon as possible. This does not comport with the seller getting the best price for the house. The logistics of sale-by-owner are simple and the practice is increasingly common in the USA.

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    • Leslie says:

      Let me know how it goes when you have complete strangers in your home on the premise of buying it. I’ll be sure to watch the news for coverage of your rape and murder.

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  6. tim says:

    As others say – to move a house fast – get an agent. To get the maximum amount of value out the house – do it yourself. Most people opt for Plan A not just because they want to move the house quickly – they don’t want to go through all the extra work required.

    When I sell my house next year – I plan on doing it myself simply because I don’t need to move fast nor do I see the value of agent in terms of selling.

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  7. peter says:

    How much more quickly do people sell their homes when using a broker?
    Basic econ. says, ‘Time is money’.

    For example, let’s say I am trying to sell a house for which I am paying a mortgage which costs me $1500/month in interest. No unusual in expensive markets.

    If it takes me 6 weeks longer to sell the house, how much more would I have to sell it for to make up for the loss of interest. I still think it is cheaper to sell on your own, but I suspect the actual cost savings are rather close.

    Economists! Help me out with the details.

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  8. Justin James says:

    I personally think that many of them are frauds and hucksters at worst, and merely stupid at best. I was working with a licensed “Realtor” to buy a house a few months ago. What a mess. we found a house we liked, but I objected to the price. She sent me a list of comps to “prove” that the price was right. Too bad her spreadsheet was badly flawed; the row that calculated averages included the “total” row, but omitted several less favorable rows. The way it was done led me to suspect that it was deliberate. It took me only a second to see that the averages were wrong, and another moment to see the root cause. On top of that, her comps were done purely on a radius standpoint, so they included many sales from a neighboring subdivision. When I drove through that subdivision, it was clearly much more upscale than the one I was looking at! When I re-worked the spreadsheet to perform the calculations properly, and to include only the correct comps, my price per square foot number was about 20% lower than hers, and nearly perfectly the number that I thought was fair within 5 minutes of seeing the place.

    Why should I pay 6% interest on 6% of the sale price of a house for 30 years for that kind of “service”? All she did was act as an in-person GPS, opening the door, and making arrangements to see the place. I could do all of that with 1 email or phone call. The “realtor” industry is a total scam. Anyone who lets a stranger lead them by the hand and dictate how to spend $200,000 needs to spend a little bit of time doing research. The fact that so many people are willing to spend that much money on a “realtor” because they are unwilling or unable to get the knowledge needed to buy (or sell) a house on their own is a great example of why the economy is on the ropes. People will spend 3 days reading reviews to pick out the perfect portable MP3 player, but let a total stranger basically dictate how to spend $200,000. Talk about messed up.

    J.Ja

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