For years realtors have been making preposterous claims about the exorbitant losses that will surely be incurred by homeowners that decide to sell their homes For Sale By Owner. The most recent post to this effect that I easily found was this November 9, 2015 blog post on the National Association of Realtors Web site: Selling Your Home Solo to Save Money? You’ll Actually Make Less Than You Think. In this article the realtor association basically claims that using an agent will get you 19% more than selling your home For Sale By Owner. How can they say that? Is that even possible?
It looks like it’s been around 6 years since I last dealt with this issue: Can A Realtor Really Sell Your Home For 28% More? The fundamental problem with the data that the NAR likes to throw around is that invariably they compare the average price of homes sold by real estate agents to the average price of homes sold For Sale By Owner while ignoring the huge differences in the types of homes sold via these two routes. For example, in that 2015 post I linked to above they even ironically point out that the FSBO seller has a lower income than sellers who use an agent and that 10% of their homes are mobile/ manufactured. Yet they go on in the next paragraph to say “FSBO make less money on their home sales than buyers who work with a real estate agent.” In other words they are claiming that a real estate agent can take an orange and sell it as an apple.
However, two PhDs from Collateral Analytics recently did the correct analysis to find out what the real sales performance difference is between homes sold through traditional high commission realtors and homes sold by owner: Saving Real Estate Commissions At Any Price. These guys explicitly adjusted for the very real differences in property attributes between groups of homes sold via the two alternative channels using an Automated Valuation Model to determine fair market value. Although I’m not a fan of Automated Valuation Models I would expect both of the samples to be equally impacted by the inaccuracy of the model.
Once the researchers compared actual sales prices to their estimated fair market values they were able to determine true sales performance of the two competing channels. They concluded that on average FSBO sales sold 5.5 – 6% lower relative to fair market value than when a realtor was involved. And it’s interesting to note that in their sample the average sales price of the homes sold by realtors was actually lower than the average sales price of the FSBO homes for whatever reason. But as I pointed out above that doesn’t really tell you anything and these researchers certainly didn’t draw any conclusions from that random and meaningless fact.
But what’s really interesting is that the 5.5 – 6% lower sales price realization for FSBO homes is pretty close to what a realtor would have charged them to sell their home. In other words the FSBO seller ended up doing more work and not saving any money in the end because what they saved in commissions they gave to the buyer. And this is actually consistent with anecdotal information I have picked up in casual conversations with FSBO sellers: “Well, we figured we had more room to negotiate on the price because we didn’t have to pay a realtor.”
Well, I guess I could just chalk this up to another example of people not being rational when it comes to real estate but I kinda get it. If you think your home is going to be an easy sale why should you pay a realtor 6% to sell it and let them make a quick buck? The only thing is…before going down the FSBO road home sellers should investigate other options that get them the best of both worlds: a low cost and low hassle sale. They can go with a full service, discount brokerage or they can even pay a realtor by the hour if they think their sale is going to be that easy. In today’s world there are an abundance of alternate real estate models available.
#FSBO #ForSaleByOwner #HomeSelling #Realtors
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.