Thursday, June 01, 2006


Lies, Damn Lies, and the National Association of Realtors

The Freakonomics Blog recently posted this item:

The National Association of Realtors has started a blog. The lead item today is headlined “The Cost of Selling without a REALTOR®: $31,800.” Pretty scary, huh? Here’s the lead: “Real estate professionals do more for sellers than make the transaction easier. They make them money. In fact, the average seller who uses a real estate professional makes 16 percent more on the sale of their home than do sellers who go it alone. That’s an average of $31,800 per home.” Unfortunately, there’s no supporting data. So it could be that a Realtor actually brings in, on average, $31,800 more per home sale. Or it could be that a few dozen, or few hundred, or few thousand Realtor-sold multimillion-dollar homes skews the average very high compared to FSBO’s, which tend to be cheaper. Or it could be a few dozen other factors.

I believe I've discovered how the National Association of Realtors (NAR) came up with their surprising statistic. The 16% figure probably comes from an NAR study which found that the median 2005 sales price for a home that was sold by an agent was $230,000, compared to only $198,200 for a FSBO home.

But the NAR is guilty of comparing apples with oranges. While $230,000 is about 16% higher than $198,200, it doesn’t follow that hiring an agent will boost a home’s sales price by 16%. There are many possible reasons that FSBO prices are relatively low. One is that FSBO properties include a disproportionate number of mobile homes and manufactured homes, which usually sell for less than detached single-family homes.

So what you're saying Lori is that the reason the NAR reports that realtor-assisted properties sell for 16% more than FSBO properties is because the NAR is compairing single family homes sold by Realtors with mobile homes sold by FSBOs??? Is that really the best explanation you came up with and chose to end your blog with?

The NAR found, in their research, that the difference between the two scenarios: FSBO and Realtor -assisted, was not based on sginificant difference in homes or locations.

Many things can account for the difference. The following are generalizations, but may account for the difference in the sales prices:

1. Realtors are professionals and have developed good negotiation skills.
2. Realtors aren't emotionally attached to the sale of the home and are better able to protect the seller's price than the seller can.
3. Realtors are generally working with other Realtors who bring buyers that are qualified to purchase the home at the asking price.
4. Buyers of FSBO properties are often trying to save the same commission that the seller is trying to save.
5. Savvy investors are more likely to prey on FSBOs than on listed properties.

These reasons are certainly as valid as the one you chose to go with.
Sorry, I don't see how a legitimate study could have come up with a 16% price differential.

As I noted the raw survey data compiled by the NAR showed:

1) realtor-assisted properties sold for 16% more than FSBO properties.
2) FSBO properties differed from realtor-assisted properties in that they included more manufactured homes.

If the NAR had conducted a legitimate econometric study that controlled for location and type of home, then the price differential would have been greater than 16%.
I don't believe a thing real estate agents say. I don't hate them just the tricky and unexperienced ones. Which in my opinion is most of them. Take the "no obligation market evaluation" for example, the oldest and most unoriginal term you will see advertised. Do they think people are stupid? The real definition should be, “yes I will come over to your home, tell you what it’s worth, then I will bug the hell out of you until you list it with me. In the meantime they will send you some “awesome” fridge magnets, calendars and pencils just so you don’t forget them. I have written at length about this, I'm NOT selling anything, just a frank, real world discussion.


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