Real Estate Agents, worth their commission?

[wiegie]

nope

 

How Much Value Do Real Estate Brokers Add? A Case Study

B. Douglas Bernheim, Jonathan Meer

 

NBER Working Paper No. 13796

Issued in February 2008

NBER Program(s): PE

 

---- Abstract -----

 

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.

[yo mama]

nope

Oh, don't be like that.

 

We had to move from Texas to California before my Texas house sold. That agent earned her commission (and then some) because the house wouldn't have sold without her. And we couldn't buy our new house until we sold the old one. She also successfully negotiated a bunch of non-economic terms and conditions, the existence or absence of which added value to my side of the equation. Plus, as evidenced by your article, homes sell faster when you use an agent. If only there was an economist at the Huddle who could explain the time value of money...

 

That said, I didn't use an agent when I bought that Texas home and pocketed the commission for myself. So I don't mind cutting agents out, where appropriate.

Edited August 6, 2008 by yo mama

[nuke'em ttg]

Just Whomp er

[wiegie]

Oh, don't be like that.

 

We had to move from Texas to California before my Texas house sold. That agent earned her commission (and then some) because the house wouldn't have sold without her. And we couldn't buy our new house until we sold the old one. She also successfully negotiated a bunch of non-economic terms and conditions, the existence or absence of which added value to my side of the equation. Plus, as evidenced by your article, homes sell faster when you use an agent. If only there was an economist at the Huddle who could explain the time value of money...

 

That said, I didn't use an agent when I bought that Texas home and pocketed the commission for myself. So I don't mind cutting agents out, where appropriate.

Although you can't read the paper without paying $5 (or getting access through a library with an NBER subscription), the authors basically conclude that real-estate agents aren't worth 6% commission.

 

(And as for personal anectdotal evidence, I can say for sure that there is no way that our buyer's agent (realtor) deserved the commission she is going to receive from our purchasing of our new house.)

[yo mama]

Although you can't read the paper without paying $5 (or getting access through a library with an NBER subscription), the authors basically conclude that real-estate agents aren't worth 6% commission.

 

(And as for personal anectdotal evidence, I can say for sure that there is no way that our buyer's agent (realtor) deserved the commission she is going to receive from our purchasing of our new house.)

My overarching point was that if you can't get your new home until you sell your old home first, and you can't sell your old home because you've already moved, the agent becomes necessary and paying the commission is fully justified. But yeah, assuming you're around and have the time, energy, and know-how to do everything yourself then its simple math: will saving 3% (your half of the 6% commission) be worth more than just going to work and spending the same amount of time earning more paycheck to pay the broker his or her 3%.

 

Also, at least in California, agents don't split anywhere near a 6% commission. Maybe half that.

Edited August 6, 2008 by yo mama

[Jimmy Neutron]

Worth their commission? Not most of the time, IMO. I can't think of a time anyone in my extended family used a REA - it's fairly simple to sell your own home if it is in good condition and priced fairly.

 

With all of the on-line tools now available for home sellers, fewer and fewer buyers are making their first inquiries with realtors and rightly so.

[wiegie]

My overarching point was that if you can't get your new home until you sell your old home first, and you can't sell your old home because you've already moved, the agent becomes necessary and paying the commission is fully justified. But yeah, assuming you're around and have the time, energy, and know-how to do everything yourself then its simple math: will saving 3% (your half of the 6% commission) be worth more than just going to work and spending the same amount of time earning more paycheck to pay the broker his or her 3%.

 

Also, at least in California, agents don't split anywhere near a 6% commission. Maybe half that.

The authors estimate that using an agent increases the probability of a sale in the first month the house is on the market by 25%, increases the probability of a sale in the second month the house is on the market by about 13%, and has no significant effect in subsequent months. It's not at all clear that those increases in sales probabilities make it worthwhile to use an agent.

[yo mama]

The authors estimate that using an agent increases the probability of a sale in the first month the house is on the market by 25%, increases the probability of a sale in the second month the house is on the market by about 13%, and has no significant effect in subsequent months. It's not at all clear that those increases in sales probabilities make it worthwhile to use an agent.

Okay. But if the owner is unwilling or unable to sell the home by themselves then wouldn't 94% of the asking price beat 0%?

[wiegie]

Okay. But if the owner is unwilling or unable to sell the home by themselves then wouldn't 94% of the asking price beat 0%?

sure (in much the same way that some people still use travel agents to plan simple trips)

[darin3]

[proninja]

The good ones are

The bad ones aren't

 

In some situations it makes sense, in others it doesn't.

[whomper]

 

 

Exactly..For the record I dont see many 6% commissions anymore. Even using 6% as an example . 3% goes to the sellers broker and 3 % goes to the buyers broker. The agent then splits that 3 % with the broker they work for. In Most cases an agent when all is said and done makes 1% on a house. I am working with a couple right now. They are focused in on 1 town near where we live. Including this week I have shown them about 20 houses now.Not to mention countless hours at the computer researching and emailing them listings I drive my car and use my gas everytime we go. I give up 1 day per weekend of my summer and 2 or 3 weeknights every week with no guarantees of any sale or $ whatsoever. I believe I will end up selling these people a house and when I do I will have earned every penny of my commision. We are actually mulling a bid on a house we saw yesterday where the commission to my broker would be 1.5%. I would then have to split that 1.5% with my broker. Its not exactly the glorious 6 % that this article is about. I rarely see a 6% commision now. Probably under 10% of the listings are 6%. Wiegie , did you use a real estate agent for the house you bought ?

Edited August 6, 2008 by whomper

[whomper]

Worth their commission? Not most of the time, IMO. I can't think of a time anyone in my extended family used a REA - it's fairly simple to sell your own home if it is in good condition and priced fairly.

 

With all of the on-line tools now available for home sellers, fewer and fewer buyers are making their first inquiries with realtors and rightly so.

 

 

A buyer doesnt pay a red cent to a realtor. You would be foolish not to use one as a buyer. We have been down the realtor road a million times on the huddle. The consensus here is that most of the huddle would root for Al Queda is they were fighting against realtors. Its all good. They are helpful to some people and others do fine on their own.

Edited August 6, 2008 by whomper

[wiegie]

I rarely see a 6% commision now. Probably under 10% of the listings are 6%. Wiegie , did you use a real estate agent for the house you bought ?

6% still seems standard here (in fact, on the house that we bought, our realtor even made the comment that the listing agent was giving the sellers a break by not charging the standard 7%).

 

So, yes, we did use a realtor as a buyer's agent. I think it was this experience that clinched it for me that realtors are overpaid. Note, I am not saying that our realtor did not provide useful services for us, but I just can't reconcile the amount of commission that she (and her agency) are going to receive with the services that she provided for us.

 

(And to say that the buyers don't pay any of the commission is just basically wrong. It's like saying that customers don't actually pay any sales tax when they go shopping since the stores are the ones who have to send the tax money in to the government. It's completely bogus that the real-estate industry makes realtors unable to negotiate lower total commissions in the event that a buyer comes in without his or her own agent.)

 

As for this topic being boring, I just thought it was interesting that as I was doing some research on another topic, I actually found a research paper that actually studied the question of whether or not in general realtors are worth their commissions.

[dmarc117]

in bad housing markets they deserve it. in good ones, they dont. this applies to the sellers agent. in the good times, all you had to do was list a house and poof it was sold. i believe the saying they used was 'listing is living'. i do think the buyers agent should get more of a cut than the sellers agent.

[Piles]

A buyer doesnt pay a red cent to a realtor. You would be foolish not to use one as a buyer. We have been down the realtor road a million times on the huddle. The consensus here is that most of the huddle would root for Al Queda is they were fighting against realtors. Its all good. They are helpful to some people and others do fine on their own.

 

A buyer doesn't pull out his wallet and pay a realtor but I have found you can negotiate that commission for yourself. At least I did when I was buying. Commission is 6% where I am and a buyers agent gets 3%. Cut out the buyers agent and tell the sellers agent you want 2% and she/he can get 4%. If they don't want the deal then you can go out and get a buyers agent who will take 3%. They will take the deal because they get an extra 1% and you as the buyer get 2%. No offense Whomper but I would never use a buyers agent. I can look up MLS listings myself, schedule the appt and have no pressure from an agent all the while knowing I will get 2% back on the house. I guess if you don't know what to look for in a house and are unsure of the area then a buyer's agent probably would make sense.

[The Holy Roller]

A buyer doesnt pay a red cent to a realtor. You would be foolish not to use one as a buyer. We have been down the realtor road a million times on the huddle. The consensus here is that most of the huddle would root for Al Queda is they were fighting against realtors. Its all good. They are helpful to some people and others do fine on their own.

 

Make it lawyers and you've got it.

 

And if I ever move to NJ Whomp, you're my man!

[Jimmy Neutron]

6% still seems standard here

 

Here too, though those that are choosing to use realtors are trying to negotiate the commission percentage before entering a contract. I think that should be standard practice. Some homes are harder to sell than others and realtors should be paid based on the amount of work it took to sell the house. Paying thousands and thousands of dollars in commission when a house sells in a few days is silly.

[alexgaddis]

Realtors are lower on the food chain than pond scum

[TimC]

I sold my house early 2006. The market was as it's peak. I simply stuck a For Sale By Owner sign in my front yard on Friday night and the next morning, my phone rang at 8:30. House sold by 8:45 AM. She had been looking at another house on the block and had wanted my house...since it was newer and smaller. She was ecstatic when the For Sale sign went up. Yeah, I got lucky. I gave her agent 2% and he was thrilled. He did nothing but write up the paperwork. Easiest money he's ever made, I'd think.

 

Nowadays, my neighbors have been trying to sell for 4 months with no luck at all. If they could find an agent to sell the house, they'd pay them their weight in gold. It's sad. The main problem with agents is they always simply say "reduce the price" because it doesn't impact their commission that much compared to the extra work they have to do to sell the house at a higher price. The homeowner is taking the real hit. In my neighbors case, they feel the house is listed at a fair price. I told them as nicely as I could that "market value" is whatever someone gives you for the house and the comps and appraisals (espcially in this market) is just mumbo-jumbo.

 

So I guess in some cases, an agent is great....in most cases a good lawyer to make sure the paperwork is all straight is way better.

[whomper]

Realtors are lower on the food chain than pond scum

 

 

And Mortgage guys lead us to the housing crisis

[whomper]

Here too, though those that are choosing to use realtors are trying to negotiate the commission percentage before entering a contract. I think that should be standard practice. Some homes are harder to sell than others and realtors should be paid based on the amount of work it took to sell the house. Paying thousands and thousands of dollars in commission when a house sells in a few days is silly. [/color]

 

 

So if a house sits on the market forever realtors didnt do their jobs and wiegie shows us percentages on how useless realtors are. If a house sells in a few days which is your ultimate goal as a seller then the realtor doesnt deserve his commission. I guess its safe to say a realtor cant win

[whomper]

A buyer doesn't pull out his wallet and pay a realtor but I have found you can negotiate that commission for yourself. At least I did when I was buying. Commission is 6% where I am and a buyers agent gets 3%. Cut out the buyers agent and tell the sellers agent you want 2% and she/he can get 4%. If they don't want the deal then you can go out and get a buyers agent who will take 3%. They will take the deal because they get an extra 1% and you as the buyer get 2%. No offense Whomper but I would never use a buyers agent. I can look up MLS listings myself, schedule the appt and have no pressure from an agent all the while knowing I will get 2% back on the house. I guess if you don't know what to look for in a house and are unsure of the area then a buyer's agent probably would make sense.

 

 

the couple that I am working with love to look up listings themselves and send them to me . Problem is on the MLS they have access to they dont even get the address of the property and they get very limited information. Half the time when I review the MLS #s they send me I inform them that its on a main road or in a flood plain etc.

 

When you list with a realtor they put you on the state or regions MLS that is a tremendous inventory for other realtors that are looking for a house. In my opinion it gives you maximum exposure. You can certainly do these things on your own . People that think all FSBOS reduce their prices to reflect the commision that they would have paid a realtor are sadly mistaken. Every industry has their snakes and lowlifes. There is no guarantee at all that a listing agent is going to reduce a commision 2 points because a buyer comes in with no agent. That listing agent has the right to become a disclosed dual agent and double dip. Realtor.com is somewhat useful but often is not updated and has listings that are either under contract or expired. I havent looked at FSBO.com because i dont try and talk FSBOs into listing with me. My next door neighbor is a FSBO. I checked out her house for the couple I am working with. She said she would give any realtor that brings a client 2%.

 

Bottom line is as we have said many times on here. You can do things on your own . Some people like in Tims example have tremendous success doing a FSBO. Others dont. At the closing the seller pays the commision no matter how you spin it Wiegie. Not everyone will reduce a commision because a buyer doesnt have a realtor

[twiley]

My first Agent wasn't worth squat and certainly didn't earn or deserve one bit of his commission but my current one has been showing me homes for over a year now and will earn every bit of that commission. It still sucks that I get hit with 6% though. That's a serious chunk of change.

[Cunning Runt]

Commissions are 100% negotiable.

I have my license also but I only do commercial and even then only on a very limited basis. I am also a real estate manager for a national retail chain and use brokers in the 5 states I handle. Those guys do very well off my account to be sure.

Edited August 6, 2008 by Cunning Runt