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.


While the seller nominally pays the commission, the burden is shared between buyer and seller according to the market. The buyer pays it in a sellers market and the seller pays it in a buyers market. So in a sellers market there is no need to use one, but it doesn't cost anything anyway, while in a buyers market the seller needs all the help they can get. As far as 6% being high, it merely attracts more people into the business so they sell fewer places. Some do earn large sums, but they likely would do so whatever they did.

Chris Hansen

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.


I am an real estate agent and have had a hard time agreeing with the idea from NAR that an agent causes the sales price to be higher. But I also don't understand how some statistics come to be interpreted but isn't that the point of Freakonomics?

I have never sold myself to sellers on the idea I can get a higher price. Though in the concept of market visibility I still feel nothing beats the MLS and agents who have access to it, which is coming under scrutiny by the government. And the paper linked in the post says that listed by an agent, the home will sell quicker.

I know For Sale By Owner's can work. I sell myself on the service side, not sales. For those who need it, I help them through the process and use my experiences to their benefit.

The more recent data is that the average commission is 5.2%. I don't know how they got that as no asked me but I think it is lower. In my case I offer commission, flat fee and have recently instituted hourly rates which has been very different.



I think it certainly depends on the market and the property. In certain markets it pays off to have agents with good contacts.


"...We address this question using a unique data set pertaining to sales of faculty and staff homes on the Stanford University campus."

Cmon, this real estate is so desired that the houses basically sell themselves.

Reuben Moore

How to sell more copies of Freakonomics:
Lead readers to believe that there is little or no competition in the market for real estate services and the price is set at six percent. In actuality, the market is quite competitive and one can find a whole array of services and prices. But, if we told people this, there would not be much to argue about.

michael donnelly

I think there is value to using a realtor.

As a buyer, there's no reason not to. That 6% fee is static -- the seller is paying it no matter what. If you have no agent, the seller's agent gets the full fee. If you have a buyer's agent, your agent gets half of it. That's someone representing you in the transaction and doing legwork for you to help find a place that meets your criteria.

As a seller, I believe if you're smart and willing to work hard, you can save money by selling your house yourself. The question you need to ask is how much of your time will it take, and how much stress will it involve? Whether it's worth it depends on what you're comfortable putting into it. I'm not sure what I'll decide when the time comes to sell my house. I'll probably try to sell it myself first, and if I can't do so in a reasonable time, I'll get an agent.

Reuben Moore

#23 (Houstonian): "I think a graduated commission schedule (6% of the sale price up to $200k, then 5% of the sale price between $200k and 400k, then 4% from $400k to ..., etc.) would be much fairer for the seller. But good luck getting the cartel to accept that."

The only way for you to NOT find a realtor willing to do this is NOT to look.


Paying an agent 6% (or anything commission over 4%) is akin to the old days of paying top dollar for new cars at the "dealership," paying a fat commission to a travel agent, paying a full commission to a stock broker and so on. It's a throwback to the pre-Internet days when these middlemen could charge huge commissions and get away with it. In California the average price for a house in the Bay area is over $700k. Do the numbers--it's ridiculous. Realtors aren't lawyers or doctors. They should be paid a flat fee for the (limited) services they provide. Once their association is finally beat back and the monopoly is broken, you'll see a free market price emerge--in fact, you're already starting to see it with the discount realtors and online services.

Lane Bailey

Two things...

First, the methodology and subject area of the study are completely out of whack with the real world. They address a very limited and desireable market where normal issues are not present. Or at least not for the last couple and next several years.

Second, net listings (what is alluded to in #29) is illegal in many states. It is entirely too easy to abuse... "Miss Little Old Lady, your house is worth $50k. If we get an offer over that, we'll share... Oh, lookie here, an offer for $500k..."

BTW, for higher priced homes, the marketing costs a LOT more money (unless one is just dumping it in the MLS), and the percentage that expire is much higher. So, there is increased risk for the agent. Sellers usually don't want to assume those costs. I'm always willing to work with sellers on my fees, and offer a flat rate possibility. When confronted with the fact that they may spend thousands of dollars on marketing, and not sell, many sellers decide to let me take the risk.

On another note, I love that real estate agents push up the price to make more money, and at the same time, push sellers to lower prices to sell faster.

Which is it?



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.


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.


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.


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.

Justin James

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.




I've always wanted to mention something that I noticed in one of the arguments Levitt/Dubner made in the book about real estate agents.

The book argues that real estate agents typically sell their own houses for more money than their clients' houses. It lends no regard, however, to the possibility that this is because the average real estate agent owns a more valuable house than the average client.

My impression is that real estate agents typically earn an above-average income. That would lead me to believe that their houses would have an above-average value. Also, I'd expect a real estate agent to be good at knowing when is a good time to buy/sell a house, so they probably only buy when a house seems undervalued and they probably only sell when a house seems overvalued.

I don't mean to challenge the conclusions made in "Freakonomics", since there are plenty of other data in the book to support the hypothesis. I just thought that this one argument might be flawed.



Peter at #7 is on to something and so is James at #16.

I'm married to a real estate agent, who's been at it for about 3 years now. It's not nearly as easy as people tend to think it is. Readers of this blog are well above average in experience and intelligence and are entirely capable of selling their home IN A HOT MARKET (like on the Stanford campus). How many hot markets out there right now?

Unless and until capitulation occurs in any given market, most buyers insist on pushing for unrealistically high prices. That hasn't really happened anywhere. People are just tossing the keys to the lender these days. If an agent wants the listing, they have to promise high and hope that the seller comes to earth later. People don't want to hear that their 3 BR/2 BA palace isn't worth 10% more than the virtually identical 3 BR/2 BA palaces down the street. (My wife had a rural farm property listed, at the seller's insistence, at $459K. My wife told them repeatedly that it was better-priced at around $375K, and provided good market research to support that number. After 18 months, and two price drops, she delivered the only offer they received, for $389K. The seller turned it down. Two months later, the subprime mess hit. Suddenly, the seller decided that she would take it off the market because, "...I really didn't want to sell it anyway." No kidding.)

My point is, readers here are rational, clear-thinking people. I have been amazed at how fear, greed, ignorance and lack of sophistication on the part of the buyers and the sellers, have played a part in the different transactions that my wife has handled. I am in software sales but would be purely incapable of selling real estate; too emotional. 6% is not too much to pay for having someone to assist the vast majority of buyers/sellers out there, particularly in a down market.



Agree with Mike @11 that anecdotally the average commission is closer to 5%. And most realtors are willing to negotiate.
although i don';t have the data to back this hypothesis up, selling one's home on one's own might maximize their expected return on a probabilistic basis. That said, once you start including the opportunity of time spent and the headaches of teaching oneself the ropes of marketing, staging, negotiating, etc. well, it starts to tip in the favor of getting an agent. Especially to get the home for sale on the MLS and into websites like
But, what i believe and haven't seen written, is that using an agent is like purchasing an insurance contract. There's a non-zero probability, less than 1% but higher than 10 bps, that there will be substantial issues with an offer before or after it goes into escrow. Having an agent in these cases is worth its weight in gold.


Ginger Pintaudi

I think the search for a home and comparing the home in a changing market are the easy part of the transaction ...I think most people are really in dark about the financial aspects as well as the contracts made apparent by the recent sub-prime mess....the seller would need to line up a host of services...and most don't want to do advertising services research...title officer or agents have the network advantage....but 6% is a chunk of change to any home owner...esp to someone who has paid payments over more than 5 years....there are discount brokers ...maybe that's the future of Real buy only the services you negotiation...and only pay for that service....GP


It is misleading to suggest that this conclusion about real estate agents is drawn by Dubner and Levitt. The truth is that the research on real estate agents was doen by Levitt and Chad Syverson NOT Dubner.