Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
Somewhat dated, but still one of the best studies.
MARKET DISTORTIONS WHEN AGENTS ARE BETTER INFORMED: THE VALUE OF INFORMATION IN REAL ESTATE
This is an abstract.
Agents are often better informed than the clients who hire them and may exploit this informational advantage. Real-estate agents, who know much more about the housing market than the typical homeowner, are one example. Because real estate agents receive only a small share of the incremental profit when a house sells for a higher value, there is an incentive for them to convince their clients to sell their houses too cheaply and too quickly. We test these predictions by comparing home sales in which real estate agents are hired by others to sell a home to instances in which a real estate agent sells his or her own home. In the former case, the agent has distorted incentives; in the latter case, the agent wants to pursue the first-best. Consistent with the theory, we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer, even after controlling for a wide range of housing characteristics. Situations in which the agent's informational advantage is larger lead to even greater distortions.
Not sure about all the philosophy behind this stuff, but i can tell you my experience.
We had a house we had lived in for 2 years and bought for 47k.
We rehabbed and refinanced 1 year into the project. had a appraisal on it for 127k.
Went to sell it and our Realtor told us we would be crazy to list it for less than 145k. We thought she was crazy... 127k was what the appraisal came back at. With Comps.
We decided to listen to her and it had a full price offer the first day.
She got us 18k more for our house than we thought...
Real Estate Agent · Alexandria, VA · Member since 2014 · 184 posts · 78 votes
9y
Do I believe I can net sellers at least 3% more than they can on their own? Yes, every time. The problem with agents is that many do not work hard for their sellers, they are cheap, ignorant to technology and just do a mediocre job. If you hire the right agent then you will be in much better shape then trying to sell it FSBO. You would not believe how many agents list homes with pictures taken from their Iphone...and I'm in a market where my average home price is 500K. You need to find someone that is experienced with a great reputation and is willing to pound the pavement.
Not sure about all the philosophy behind this stuff, but i can tell you my experience.
We had a house we had lived in for 2 years and bought for 47k.
We rehabbed and refinanced 1 year into the project. had a appraisal on it for 127k.
Went to sell it and our Realtor told us we would be crazy to list it for less than 145k. We thought she was crazy... 127k was what the appraisal came back at. With Comps.
We decided to listen to her and it had a full price offer the first day.
She got us 18k more for our house than we thought...
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
First day? that is exactly the point of the guys in the paper: the property was underpriced. A fair price is a function of competition. What are the chances that your agent managed to reach wide and create competition in one day? Not very high. Let me rephrase: "zero". I would not be surprised if it were a double sided transaction. Was it? She sold it too quick just to move on.
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
The fact that she sold the house for more that you thought it worth is irrelevant. It just means that you did not have good information about the market. What is relevant is the relationship between the price she sold the house and the fair market value.
Did the appraiser not have the info that the Realtor did? Why would the appraiser say it is worth less?
It was not a double sided close. had 4 showings the first day. None of them from her or her office. She had no idea we would see that much action the first day.
It was the ONLY 3 bed 2 bath house for sale in the entire town. sometimes the sit for months. There are 4 on the market now that have not sold for a long time. better than ours and the same or less price.
We just hit the market right as people were looking. August...
Residential Real Estate Broker · Portland, OR · Member since 2015 · 153 posts · 105 votes
9y
@Joshua D. Appraisers don't know the market - appraisals done before a sale often come in much lower than the home is actually worth. That's basically because *unofficially* the majority of an appraisal is what an independent buyer is willing to pay for a house. So without an offer on the table, the appraiser uses a standard set of values for things like pools, garages, etc and compares them to what amenities other homes have. But rarely does that take into account what a future buyer is willing to pay for a house.
If you're happy with the transaction, then it sounds like your realtor did a great job.
Which leads to... realtors have to account for a seller's feelings in the transaction - if the seller is worried it's priced too high at say, $150k, and the realtor knows its worth $160k, that extra $10k may just be lost if they can't convince the seller to go higher. Or the sellers want to sell really quickly, etc etc. Its not like the realtor gets 100% control over a client's listing.
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
The comment about appraisal has merits, but again the task here is to sell at or above market price. It is unknown, but there are ways to get there. These ways are not secret. It might be a very lucky coincidence, but i would not get into a contract after just one day. I would ask buyers to submit offers, preapprovals, and procrastinate for a couple of weeks. Then I would run a little action. I am sure your realtor would have done it if she were selling her own place.
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
9y
@Jacob Bindler I agree that the agent may have still underpriced @Joshua D.'s property to get a quick sale (after all at $145k she's still not making much), but like Joshua said, she grossed him an extra $18k he wouldn't have otherwise gotten. She was obviously worth it in that scenario.
I only briefly skimmed the paper you referenced, but all that proves is that agents work harder for themselves than for their clients, which is quite logical. As @Dan Bernstein alluded, they'll still get a homeowner more than said owner would get on his/her own, in most cases. Just because they're not 100% selfless doesn't mean they don't have value to the seller.
Real Estate Agent · Alexandria, VA · Member since 2014 · 184 posts · 78 votes
9y
You have macro data which allows you to broadly generalize. When you interview an agent, make that agent overcome your objections and prove their methodology. You can choose to sell fsbo, but your decision is based on the average. A good agent should have data and numbers showing their personal performance. The average agent does suck, but if you sell a huge volume and you aren't average you are more likely to care more about client satisfaction and future referrals than a quick sale for less money.
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
I obviously am not writing all these posts just because I do not like agents or do not believe that some of them bring value. I understand perfectly well that some of them bring value, some are value neutral and some are value negative. I have my own agenda: I am trying to figure out a better way of working and compensating real estate professionals. I have my own ideas and am testing a service to do just that, but the point of my posts is to understand how an average investor thinks about these concepts. From what I see the people are mostly comparing apples and oranges. For example, Joshua was comparing his assessment of what he would get for the house with what the agent sold it for. He sold it for the higher price than his assessment and was happy. Wrong approach. He should have compared the selling price to the market price (the fact that it is hard to set is irrelevant at this point). Next example is the notion is FSBO sellers are getting lower prices for their properties than these who sells through agents. The stats is promoted by NAR and self-serving. In fact, the prices for similar properties are generally the same. Here is the link to the research on that http://domovendo.blogspot.com.
How, I have a question to all you agents: let's say you are selling your own property and at the very first day you show it four times and get an offer at the asking price. There are not many similar properties on the market. What would you do?
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
9y
"we find homes owned by real estate agents sell for about 3.7 percent more than other houses and stay on the market about 9.5 days longer"
The agent choosing to take a risk with their own money and property (by rolling the dice a better offer will come in) is one thing. Taking that risk with a clients money and home is another. Another point your study fails to note is that most times an agent has several properties and has the luxury of waiting for the deal they want. Many times the average seller has a reason to move (out of state, health, health of a loved one, job etc) and they can't risk waiting for the next one.
I am required to give all offers to the client and advise them, it is what I do. I make recommendations based on market conditions and the area. The people who actually take advantage of home owners are the ones that throw 2 signs at them, put them on a website and tell them "Good Luck". All the while having no idea (or interest in) telling them how to actually sell the property in the area they are in.
I can put an address on here of a house down the street and there is not a person on here (with the exception of those that live within about 20 miles of me) that can tell you what it is really worth. That little house on commercial land, the one where the new on ramp was just approved at the board meeting last month. How much is finished and heated below grade square footage going for in that subdivision? Is that house missing half a roof 2 doors down going to effect your ability to sell? They have already had 2 votes to dissolve the village, what is the drop of $800 a year in taxes going to do when it finally passes to home values?
Advising clients is what we do, we have legal and ethical requirements. Saying we "Push the first offer because we want it to sell quick" is an ethical violation and is calling integrity into question. If my client wants it sold as quick as possible for as much as they can because they have to move their dying mother into a home, I'll advise accordingly. They could also try and FSBO it, I know places that will send them some pamphlets and generic information, they can even call into a call center to get scripts read to them.
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
9y
"How, I have a question to all you agents: let's say you are selling your own property and at the very first day you show it four times and get an offer at the asking price. There are not many similar properties on the market. What would you do? "
Sell it... (and I would advise my clients the same)
I listed it at what I am sure an appraiser will allow it to go for. Sure I can hold out for more, but when it doesn't appraise I am in worse shape. Just because I can get someone to offer me 350K for a property worth 110K doesn't mean it is closing. (unless they are all cash and just want to throw their money away).
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
Let's try to see the forest, not the trees. There are a lot of special cases and individual preferences, but at the end, after analyzing 100,000 transactions and accounting for differences that is what the authors found: the agents are doing better when the reward is bigger. Maybe the solution is to increase commission rates?
REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
9y
"I would ask buyers to submit offers, preapprovals, and procrastinate for a couple of weeks. Then I would run a little action."
Have you ever sold a house?
Something called "life of offer". If my buyer wants it they make an offer and you can accept or decline, you have until tomorrow at noon. You can "procrastinate for a couple weeks" if you want but if my buyer does not get a response they are moving to the next one. If you choose to let a full priced offer expire in hopes of a shinier penny, that is your call, the MLS is full of people who pushed a great offer off and are at 160 DOM just begging to have that offer back.... or any offer.... or any traffic.
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
9y
Actually, having sold FSBO, using an agent, and as an agent myself selling others' homes over the years, I can state from experience that this study is meaningless. Here is the most telling part in it, in my opinion: "In contrast, in the third of the sample where houses on the block are most alike, agents obtain only 2.3 percent more for their houses and time on the market is not significantly different. Second, the rise of the internet has made it much easier for sellers to directly observe the characteristics of other houses on the market and to find recent transaction prices, reducing the informational advantage or realtors." And this was over a decade ago, with huge advances since then in sellers' ability to find information about sales in their area. Each individual house is different. Two houses right next door can have an entirely different buyer pool simply because one may have a first-floor master and one not, or even as simple as one is clean and one is cluttered. That alone can account for the differences they are talking about.
Real Estate Investor · Williamson County, TX · Member since 2011 · 1k+ posts · 961 votes
9y
market price is a sweet spot...remember when one of the national RE brands started marketing listings in price ranges?
Realtor houses may sell for more because they understand staging and do the work of decluttering and cleaning well.
No doubt some realtors prefer to slightly underprice creating demand/urgency in the hopes of market forces bidding up if it is too low. others may be more aggressive and shoot for the top price from the get go, especially in an up market. Then they can brag about a high selling price. In both cases, it is a price range and a bit of luck...especially in a small market.
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
Market price is indeed is something of a ghost. It is a product of a process (buyers and their agents are accessing a property and submitting bids). None knows it for sure before the process starts. What I am trying to get out of this post is to see if people can share the techniques that work for them. We already got one approach from Mike here: sell to the first guy with a credible offer before it becomes a pumpkin at noon next day. It works for him, but other people might have something better.
No, you asked what I would do with a full priced offer on day 1. I would sell it. Not "to the first credible offer". There is a difference and it is quite large.
I assume in your training site you are teaching your clients how to use "life of offer" to their benefit. Example. House listed at 8AM. I called for appointment and first I could get my clients in was 1:00 (First showing). The agent let me know she had one at 6:00 that night and one at 7:00. They loved the house, recommended a full price offer with a "life of offer" of 6:00 (Before the other client could get in). It was accepted and.....
Now without you knowing my clients backstory or what happened to the other 2 people to look at the house.
I will ask you as the seller what you would do and what would you recommend to someone using your service?
Investor · Hastings On Hudson, NY · Member since 2016 · 107 posts · 20 votes
9y
What I am doing is developing a platform where the seller, in the situation you just described, is able to find and hire an hourly or fixed priced expert who actually went through a similar situation a number of times before and can advise the seller. Not negotiate for them, but advice. I am not claiming to be the expert. All I am saying is a quick sale might leave money on the table. It is possible that your solution is the best one and you personally might find my platform useful and charge sellers per minute advising them on how to convert offers quickly and reliable. You might market your advice as independent assessment $100 for 10 min and people might love it. I hope.
On a personal level, if I were a seller, I would call back and politely tell the first buyers that they are definitely ahead as I loved them very much, but I need a day to entertain other offers. I might even take a gamble and tell them that I will give them $500 discount if they wait for a day. Some people might play dirty and sign a contract knowing that they have three days of an attorney review (NJ) to get out of it if the other offers are higher.
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
9y
@Jacob Bindler, To answer your question about having 4 showings of my own house the first day and getting a full price offer, I sell. I've sold several of my homes to the first person who has seen them. Definitely did not wait to see if the other guys would actually show up that day and make a similar offer. If my buyer walks in with a few thousand in equity that I may have left on the table but I've gotten what I've asked for, win-win.
I think you are thinking of this in the wrong way. Selling houses is more of an art than a science as each seller, each buyer, each plot of land and each home is unique (unless you are in the cookie-cutter square box neighborhoods). Different sellers have different needs. Some need to move fast, others want to test the market. Different buyers have different needs -- buy right now or just looking, downstairs master or 3-car garage a must. Fair market value for a house, to me, is what an interested, able, willing buyer is ready to pay for that house at that time. Not sure how you develop a platform for that.
First day? that is exactly the point of the guys in the paper: the property was underpriced. A fair price is a function of competition. What are the chances that your agent managed to reach wide and create competition in one day? Not very high. Let me rephrase: "zero". I would not be surprised if it were a double sided transaction. Was it? She sold it too quick just to move on.
Im not trying to pick on you. Some properties will sell for the most with 1 day on market, some take 30 days to get maximum price, some can even achieve the maximum price by never coming on the market and being sold as a pocket listing. A good agent will understand these ebs and flows and do what is appropriate for a particular house, in that neighborhood in that market. I know neighborhoods where I want the house sold on day 1, because that will be the best offer, and others where I want 6 days, and others 30 days. Often if you are pushing the limits on pricing in a hot market, your best offer comes in day 1 or 2. If you are lasting til day 3 or 4, some buyers are suspect of the price and wont bid as hard.
Again, every property is different. Every neighborhood, every city, every market.
Real Estate Agent · Highland, UT · Member since 2015 · 407 posts · 272 votes
9y
@Jacob Bindler I found this to be very interesting so I decided to go through my MLS and see if that data holds up in my market because as you know all markets are local. I took the average of my county for the last 12 months.
610 Owner Agent Sale: Sold for 97% of asking price average days on market 15.7
7,911 Property Owners: Sold for 98% of asking price average days on market 18
86 Bank Owned: Sold for 95% of asking price average days on market 31
45 HUD homes: Sold for 95% of asking price average days on market 45.
In my market the property owners made more money by 1% than the owner agent and the average days on market are only off by 3 days which could easily be a agent being able to decide quicker on accepting an offer then waiting "a few weeks" for an auction :)
An argument can be made if that data didn't separate bank owned, HUD and property owners that the average days on market where pulled up by bank owned and HUD homes because they have separate rules for selling homes and often won't take offers within the first 10 days automatically pushing the average days on market up.
I personally find it the other way when viewing homes of owner/agents often overprice their homes that they live in because just like normal sellers they are emotionally attached to the home and can't look at it with neutral eyes.
A better way to look at the data would be to track the 610 owner agent sales and see what their personal average days on market and average list to sales price are then see what their home sold for VS their clients. However I can't figure out a way to do that without spending too much time on this.
Then again the argument can be made that the agents homes have sold for more because the know what repairs needed to be done, what staging, what pictures, what remodel would get top dollar, making the home available to showings, keeping the home the right temperature, smelling right and the million other things we tell our sellers to do that they might decide not to do. There are some great agents and some pretty bad agents so if they are comparing the top agents numbers to the worst and then comparing them it doesn't give you the full picture.
There is a platform service here that is doing what you are trying to do. They offer to list your home on a website (not the MLS) market the home with professional pictures and a nice sign. They give you access to state contracts and a lawyer to ask questions to for a fee. My market is is a hot seller's market (well it's slowing down right now) during the summer I saw multiple homes that first used this site to sell their home on the MLS with a Realtor and even sold one to a client. In theory they had access to a lawyer who should have been "better" than a Realtor but they still failed to sell the home. Reasons could be not knowing if your buyer is qualified, not knowing what type of financing your home can qualify for FHA, VA, Conventional, That one would be hard to answer over the phone. Pricing the home wrong and many more things. Each of these conversations would be more than 10 minutes.
The problem with $100 for 10 minutes is it would only take an hour phone call to cost more than the average listing commision and I'm sure I talk to all of my clients more than an hour a transaction so why not hire an agent and get unlimited access?
