How Much Value Do Real Estate Brokers Add?

[kid disco]

Case study by Stanford economist B. Douglas Bernheim and Stanford grad student Jonathan Meer... (25 page PDF):

http://www.nber.org/tmp/45043-w13796.pdf

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.

[SLP-NYCT]

Thats funny, because if you poll FSBO buyers, they are not willing to pay the same for a house without a Broker because they know the seller is not paying the commission either. So yes, lower selling price, but same NET. The real question here is WHAT VALUE do we add to or provide to a Seller?

Every FSBO I have talked over has told me the same thing: They never realized how much work it was. The ads, marketing, having to be there for a showing. All the Tire Kickers and those looking to get decorating ideas.

Though we get some, very few Lookers would go through all the trouble and paperwork just to see inside of a house. They would rather just go during the open house, but they have no problem making you stay home on a Friday night cleaning so they can stop by Saturday morning early and get some ideas before heading down to Home Depot.

I do think there are agents that are worthless and there are agents that are a Godsend. People have to pick the right one.

Just had a FSBO seller with a ridiculous ad. They talked about Children, Mother Daughter and Church in their ad. Saw the home, not a CO Detector in sight. I let them know how many NYS laws they just broke. They didn't realize there even were laws pertaining to them. That alone is VALUE.

Had a FRBO (my term for For Rent By Owner) pronounced: Fir-Bow. Showed the place to my clients who were interested. I took the application and proceeded to cross out every Fair Housing Violation (total of three) they had on the application. Sent it back completed less the questions in violation and attached a copy of the law. Another case of I didn't Know. There was certainly some value in that!

[NealRM]

I did a quick review of the article. The study is badly flawed. I hope is was done by the undergrad students.

First) For thier conclusion that value of the MLS system was set at $0. They did initialy discuse a value of $300, that is not what was used in the conclusion.

Second) There was not amount set for the time it would take for an owner to do all the services that a REALTOR provides. Nothing about lossing pay to stay at home to show the house, nothing about the times spent filing out forms, nothing about time creating and placing ads ......

Third) No advertising cost were included.

Forth) Nothing was included to account for advoiding the pitfalls that can easily happen to inexperienced home seller / buyers.

Fifth) No value was assigned to prepairing the home for sale.

Sixth) No value was assigned to the amount of stress a FSBO seller experiences.

Seventh) The University appear to worked as a real estate agent in this study. That would seem to biasis the results.


This was only a quick reading and these were items that jumped out. If anything is mis-stated, please let me know.

[Jesse in Portland]

And the sample used is ridiculous. 800 homes on the Stanford University campus that are only sold to faculty and upper level staff? C'mon, you call that a representative sample? Were they too lazy to even go off campus for data?

I bet most of those homes have a waiting list.

[GetSmart]

I disagree that fsbo buyers pay less for houses. I have had buyers willing to pay full market value without an agent involved in the deal. As long as a house is packaged right, it will sell.

Most fsbo owners don't have an inspection report, a purchase appraisal, pictures of comparable houses, current houses on the market, provide flier box, or all of the due diligence an agent will help a buyer have to avoid.

Buyers want to buy a house that they trust with all the paperwork to prove the house is in deed ok. All they want to do is sign off on the agreements after they have read all reports. Realtors definately save time, can a savvy seller sale without an agent sure, but is it worth the time?

[jerome]

FSBO Shoppers "think" they can pay less for a FSBO Home - i.e. Deal directly with the owner, less sophisticated Seller, catch someone who doesn't know the true worth of their under-priced property, no padded Commission, etc.

This is a reason for the popularity of Craig's List.

[NealRM]

There are those FSBO seller that do under price their homes. That have lived there for years and don't understand how much the property has appreciated.

Others are tied emotionally to the house and inflate the price based on their feeling.

Some compare their home to other they think match. They do not realize that if homes in your neighborhood are selling in the 120's they are not going to get $220,000 for their property. Even if it is the nicest on the block.

[EFS Webmaster]

800 homes on the Stanford University campus that are only sold to faculty and upper level staff?

A study on pricing theory in a 'closed market' makes it pretty darn hard to draw any conclusions that would apply to the real world.

[GreggRio]

While I did not read the study and I can tell you from experience that the homes they speak of are not cheap, and always in demand. Even in this weak year and years past the Palo Alto area,where Stanford is located, is one of the hottest, highest priced markets in the bay area.

Think over 1 M average for starters and multiple offers in almost any market. The area is beautiful and rarified, with silicon valley money ( g's campus is there in silicon valley) abundant. An extra hundred thousand is nothing on a house with multiple offers.

I think we can all conclude from experience there is a certain confidence that inexperience brings. Many FSBO's have that, and with time, like most things, the longer you do it, the more you realize how little you know. Professional help makes the results easier and reduces liability. If one has any value to that and time,one quickly realizes the value of a professional.

[Bigtoe]

I stopped reading the study when it got to the part about the housing being limited to staff and faculty. No comparisons can be made with an open market.

I used to think Stanford was a good school but this paper challenges that assumption.