This is a Money Mavens Network post, the first of many to come. This time, a number of the Mavens will be writing on the topic of using a Real Estate broker to sell your house. (We’ve not seen each others’ posts before publishing, so any similarities are purely from the category of “great minds thinking alike.”)
A few years ago, pre-crash, a neighbor put his house on the market. When it sold within two days of being listed, I found it odd that he seemed so happy with himself. I told him,”sorry, but I think you got Freaked.” I told him that I had read the book Freakonomics, and was recalling a chapter that discussed the conflicting motivation that a real estate broker had. The author cites a study that showed, all things being equal, an agent will sell his or her own home for an average 3% more than the same home sold for a client. It turns out that when selling your home, an additional $20,000 may be quite a bit of money to you (as it is to me) but on a 6% commission, that’s $1200. Once it’s split between the listing agent and yours, and your agent splits half with her office, it’s a $300 difference. I went on to explain to my not-happy-as-before neighbor that the very fact that it sold so quick should make it obvious the price was set too low. In his case, the Zillow estimate was nearly $30,000 higher than his sale price and I thought he’d have at least split that difference had he set the listing price higher. Of course the agent’s economic interest was best served by a fast sale. I won’t even try to calculate the hourly return the commission brought her. In the end, the impact to my neighbor was far greater than the 6% listing fee. On a lighter note, this was a neighbor I wasn’t sorry to see move, a bit of schadenfreude, I suppose.
Recently when a friend told me she was putting her house up for sale, I walked her through the story above, explaining the math, the 1.5% of the increase/decrease in price being all the agent gets and leaving her with the warning that the agent is not her friend. To be fair, real estate agents are in a better position to move a house than most of us might be. Buyers are coming to them, and through MLS and their own networks have access to more information than you or I might. On the other hand, the internet along with market pressure is fast eroding that advantage.
Check out my fellow Mavens posts as well:
Len Penzo – Real Estate Agents: Why You Rarely Get What You Pay For
The Financial Blogger at Green Panda Treehouse – Would You Take A Realtor To Sell Your House?
Tom at Canadian Fiance Blog – Should You Use A Real Estate Agent To Sell Your House?
Paul at Fiscal Geek – Should I Use a Realtor to Sell My House?