Why FSBO Sellers Need To Consider Avoiding Real Estate Agents

A new study dated February 2008 by two Stanford University professors shows that FSBO listings make good economic sense for homeowners who are trying to sell their properties. The case study, How Much Value Do Real Estate Brokers Add examines the cost of home sales in the neighborhoods around Stanford University in the past 26 years. You may want to consider what a study like this in your area may find to be reality.

The professors, Douglas Bernheim and Jonathan Meer, used NAR data to determine the benefits that homeowners say they receive from using a real estate agent, and then attached a fixed dollar value to the bottom three benefits: MLS access, pricing information and help with paperwork. They arrived at the fixed dollar value by taking the standard 6% commission and applying it to the first $23,000 of a home's worth. The professors valued these services at $1,400.

Using average selling price data and average commission data, the professors calculated that the average real estate commission is $12,500. If the bottom three benefits were worth $1, 400, sellers were paying the real estate agent an average of $11,100 for the top three benefits: promotional services, negotiating assistance, and buyer screening.

Then the professors examined the NAR claim that a realtor could get as much as 27% more for a listed home than a FSBO seller could. If true, the claim would presumably justify using realtor services. . Instead, the professors found that FSBO real estate does not list or sell for less money than broker-listed real estate does. The study also showed that homes listed through agents sold faster, but stopped short of calling that an advantage.

The professors noted that real estate agents tend to encourage their clients to accept the first offer they receive. The professors' conclusion was that real estate agents, who collect commissions on sales, may be motivated by actions that support their own financial interests instead of those that support the best interests of the homeowners. In this relationship, the professors concluded, it is impossible to say that a quicker sale is a better sale in terms of the homeowners' interests.

This is not the first study to debunk the claim that real estate agents can get a higher selling price than homeowners can. The conclusions of the Stanford study suggest that homeowners would do very well to examine FSBO selling carefully. Since the initial asking price and the ultimate selling price for a home will be similar regardless of how the home is sold, the real estate agent's commission will come out of the homeowner's equity, instead of an inflated asking price. In today's shrinking-equity market, real estate agents may become a luxury that many homeowners can no longer afford.