For Sale By Owners Sellers Net Higher Sales Price, Study Finds

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Almost all home sellers—around 90%—use a real estate agent, according to the National Association of Realtors. But new research looking into the major real estate markets of Minneapolis, Houston, and Charlotte found that sellers can actually get a better price when they sell their home on their own. 

Three economists for the Federal Reserve Bank of Atlanta built a huge database compiling more than 2.3 million real estate transactions between 2000 and 2019. That’s two decades of data from the pre-crazy pandemic real estate era. 

They found that owners consistently beat agents on sales price, earning 1% to 4% more than agents for similar properties (depending on the market)—and that’s not even including the owner’s savings of up to 6% by not paying a commission to the listing agent. Additionally, the buying agent’s commission (around 3%) is also typically paid from the final sales price. With home values on the rise, that all can add up quickly for a seller.

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While the researchers did note that sellers who did not use an agent typically had their homes on the market for longer and were also more likely to not complete a sale, their final conclusion was that the quickness of the agent ultimately resulted in a lower selling price.

To give an example, researchers noted that for a home sale of $286,000, assuming the seller pays a 3% commission to the buyer’s agent, a $400 flat fee to list the property on MLS (Multiple Listing Service), and earned a 4.3% premium on the home without using a selling agent, the resulting savings would be $19,740.

The Usefulness (Or Not) Of Selling Agents

In the opening of the paper, the researchers noted that despite the rise in technology that has made it easier than ever for people to buy and sell homes, agents’ commission rates haven’t declined over the years. Moreover, they noted the low barriers to entry into the field, as most agents simply need a license obtained by an exam and background check.

For the study, the three economists—Chris Cunningham and Kristopher Gerardi of the Atlanta Fed, and Lily Shen of Clemson University—focused on the performance of 16,000 individual real estate agents in the three markets earlier defined.

They figured out who were full-service realtors in each market, like ReMax and Century 21, and which companies were “flat free” brokers, who pretty much just list the property on MLS and that’s it. 

When breaking down the numbers, the researchers found that your choice of real estate agent has tremendous consequences when it comes to selling your home. The numbers are actually quite shocking. Switching from one of the worst agents in the market, a listing agent in the bottom fifth percentile, to one of the best in the 95th percentile, would increase the sales price of a home by 15% to 20%.

They also found that only the very best agents in the market could actually beat an owner who was selling their own property. As we noted, the first financial win for a seller who chooses For Sale By Owner (FSBO) instead of using an agent is the 3% to 6% commission savings. The second win is that an owner will likely get a higher price from the buyer.

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The study also found that it’s challenging to identify the “super agents” in your real estate market who can actually get you a higher price for your home than you could on your own. Seniority isn’t predictive of performance, and neither is the size of the real estate firm they work for.

According to this research, experienced listing agents actually get slightly lower prices for their clients because they are selling homes as fast as possible to get their commission and they are spreading their efforts over a large client database.

Is There Any Benefit To Using A Selling Agent?

This data seems to contradict figures provided in 2021 by the National Association of Realtors. In their November highlights report, they indicated FSBO sellers sold at a median of $260,000 in 2020 compared to the median sales price of $318,000 for agent-listed homes.

Of course, the single year of analysis in 2020 when the market was taking a drastic turn in a seller’s favor could account for this difference, as well as accounting for more than three markets in their analysis. Additionally, the median sales price still doesn’t factor in the cost of the selling agent’s commission that is paid from that figure. A 3% commission on $318,000 would be $9,540, while 6% is $19,080.

As the economists pointed out, there are highly skilled selling agents out there that truly can negotiate a higher selling point for your home that would offset the commission paid to them.

Beyond finances, a good selling agent can be a valuable resource when it comes to determining a sales price, providing market knowledge, and saving the seller time.

When it comes time to sell your home, there are many factors to consider, but you may want to take a more serious look at selling your home on your own. If you do decide to use an agent, always be sure to shop around. Reading agent reviews, looking at previous sales, and ensuring good synergy is essential to make this stressful time as easy as possible.

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