Can A Realtor Really Sell Your Home For 28% More?

Can A Realtor Really Sell Your Home For 28% More?

There is a 3 letter answer to this question, starting with the letter N and ending with the letter W. The very fact that the National Association of Realtors claims this to be the case is an outrageous embarrassment to the entire real estate profession.

I've actually addressed this issue a long time ago but in light of a recent NAR blog post claiming that FSBOs (For Sale By Owner) sell for 28% less than realtor marketed homes I think the truth bears repeating.

The NAR blog post starts by accusing the ForSaleByOwner Web site of giving people the facts, but not all the facts regarding FSBO sales and then goes on to provide their own set of facts, but not all the facts, and throws in a math error to boot:

In 2010 for an arms-length sale, the median sale price through a Realtor® was $200,000 for new and existing homes combined, according to NAR’s Profile of Home Buyers and Sellers 2010. The comparable FSBO price was $ 155,700. Avoiding the commission results in a sales price that is 28 percent lower—not a very smart idea.

Uhh....first of all get your calculator out. $155,700 is not 28% lower than $200,000. It is 22% lower. However, $200,000 is in fact 28% higher than $155,700. A simple error? Maybe. Or maybe 28% sounds better than 22%.

But the bigger issue is that the NAR is incorrectly extrapolating pricing information from median price data. As I've pointed out on numerous occasions, median prices are heavily influenced by mix. For example, people in a low income community are probably more likely to buy cheaper cuts of meat than people in a high income community, resulting in a significantly lower median price/ pound. Would you conclude from median meat price data that meat is cheaper in a lower income community?

What is more likely to be going on here is that people who choose to sell their homes themselves tend to live in less expensive homes. Maybe it's tougher for them to swallow a 6% commission than someone who makes more money and lives in a more expensive home. Maybe their time is worth less to them than someone who lives in a more expensive home. Or maybe they realize that lower priced homes sell faster.

In reality it's almost impossible to determine whether or not realtors get more money for homes. To really do that you would have to sell a group of homes twice - once with a realtor and once FSBO. If Zillow was any good we could compare the selling price of homes to their Zillow values for two sets of homes but, as I've recently demonstrated, Zillow is pretty bad. So we'll never know.

There are actually a lot of reasons for using a realtor to sell your home but a 28% higher price is not one of them:

  • It's like changing your oil. You could do it yourself but is that really how you want to spend your time?
  • A realtor has access to a lot of marketing vehicles that you won't and can present your home in the best possible light.
  • Realtors have seen so many weird situations that if your transaction hits a snag they will likely be much better suited to handle it than you.
  • Realtors can bring a much more objective perspective to the entire transaction.

Do I think realtors can get you more money for you home? Yes, because FSBOs feel like they are saving on the commission so they routinely give up those savings at some point during the transaction. And better realtor marketing translates to better exposure, which should get you a higher price. But I'm talking a few % here, nowhere near 28%. No one in their right mind would believe such a ridiculous claim and by making such a claim the NAR loses what little credibility they have left. Do you have any idea what would happen if FSBOs routinely underpriced homes by 22%? Those homes would be flying off the shelf in 24 hours. I don't think that's happening.

Oh...one more thing I forgot to mention. The author of the blog post is the Managing Director of Quantitative Research for the NAR. George Orwell would be proud. Feel free to click over to the NAR blog post and let him know what you think of his shenanigans.

 

Comments

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  • The blog does not say FSBO homes sell for 28% less than median Realtor sold homes. It says the difference in selling price ($44,300) is "a difference of 28 percent from the FSBO price."

  • In reply to PeteyKay:

    Wait a second! What's on the blog post now is different from what I copied yesterday when I wrote this. I copied and pasted it directly. They must have gone in and modified the post after seeing my post.

  • In reply to PeteyKay:

    Sure enough. If you check the cached copy on Google and compare it to what's out there now they changed it since I posted this. That's OK though. The key is that it's now less misleading.

  • Most realtors seem to blacklist FSBO listings and won't get involved at the buyer end. However, with so many people underwater, I wouldn't be surprised to see more FSBO listings in the future as owners figure they have to save every penny possible to reduce the money they have to bring to the table

  • In reply to darkangel:

    It makes no sense to blacklist FSBO listings. However, I will tell you that neither lenders or realtors are crazy about the idea of working with a FSBO simply because historically those deals are trouble prone.

    If a seller is underwater and is considering a short sale then they absolutely need a realtor. It's an area that really requires considerable experience.

  • In reply to Gary Lucido:

    I didn't mean a short sale per se. Let me give an example. Someone has a house or condo that they want to sell and the CMA comps show it might go for $200K. You don't know that until you get a buyer though but let's go with that. Say Mr and Mrs Someone has been good about paying down their mortgage, but they still owe $170k on it and they get an offer for $180k.

    i'm making these numbers up on the fly but you should get my drift that a seller might be tempted to cut out the realtor commision to close that gap and not pay more out of pocket. That's what I was getting at when i said " owners figure they have to save every penny possible to reduce the money they have to bring to the table"

  • fb_avatar

    The three-letter answer to your question...the only thing I can come up with is

    NOW

    ...but I don't think that's what you are looking for.

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