US News is hosting a debate of sorts on the value of using an agent. The person on the side of not needing agents is a VP of forsalebyowner.com, a site whose point of view should be obvious. I have a skin in both games. I will repost my comment here:
Ah, if all agents were good for is to be the database of homes for sale like forsalebyowner.com. Then, buyers could all yell “I saw the house first” and save themselves (or the owner, we never know which) 6%. Too bad it never works out that way except in anecdotal examples and grossly flawed studies like Freakonomics author Steven Levitt ‘s hack job at Northwestern.
A few facts which you don’t need a study to grasp:
1. Most people simply stink at selling anything, especially their own home.
2. For Sale By Owner sites have never been able to specify exactly who saves the 6% when you cut out the agents. Is it the buyer or seller? Answer: whichever one they are addressing.
3. Even though the internet and other innovations have utterly devastated the livelihoods of travel agents, stock brokers and others, Mr Healy himself admits that commissions have risen over 50% since 2000. The market is efficient, Mr. Healy.
4.If selling homes is so easy, and presumably foreclosures are even more popular among buyers than regular homes, why do banks list their REO’s with a a broker? Because they know what works and what doesn’t. And a title firm and attorney can’t sell an REO without brokerage.
5. As a matter of fact, every successful title company and real estate law firm (and mortgage company) has strong relationships with brokers and agents.
6. Every discount and gimmick “business model” like Foxtons and Iggy’s house has flopped.I have a skin in both games because I run a full service firm and a FSBO assistance firm. I have a front row seat to plenty of FSBOs who sabotage their own deals left and right. Who is right for FSBO? About 5-10% of the market. The rest need a broker.
The Levitt study I allude to is economist Steven Levitt’s conclusion based on his study of the Chicago MLS data for several years that agents sell their own homes for more money because they take more time to wait for a higher offer. Anyone with half a brain knows that correlation doesn’t equal causation and that, all things being equal, older, stale listings will sell for less. I have corresponded with Mr. Levitt and he has admitted to me that the study never truly accounted for distress sales, loss of jobs, divorces, estates, or other conditions which suppress price and shorten time on the market. He only passively acknowledged that agents would likely be better at staging, pricing right to begin with, being flexible with showings and taking delays and extensions with more tolerance than the average Joe.
But beyond that, for every anecdotal example I have ever heard on a successful for sale by owner, I have heard another where someone goofed big time on the buying or selling end and got hurt financially. My question as to who really saves money with in a for sale by owner will never be answered, because there is no answer. If the buyer saves the commission, then what good was it for the seller? If the seller saves the commission, how did the buyer benefit?
J. Philip Faranda
I couldn’t agree with you more. 95% of the FSBOs will fail even if you take them by the hand and explain everything step by step.
Many sellers seem to think that the internet will sell it for them. I know of a few cases where listing on a “for sale by owner site” has sold their home in just a vew days, but it is so rare.
It is unfortunate that Mr. Levitt didn’t perform a realistic study.