With home prices dropping and the real-estate market in disarray, real-estate agents are not the most popular professionals these days. As prices continue to slump, many homeowners are loath to pay an agent on a home sale that isn't likely to be profitable for them, no matter what the agent does. There's also a lot of contention about how much value a real-estate agent brings.
Well-publicized statistical evidence says that that when real-estate agents sell their own homes, they tend to keep them on the market longer (by about 10 days) and get a higher sale price (by about 3%) than when they sell homes for their clients. These figures come from the wildly popular 2005 book "Freakonomics" by Steven D. Levitt and Stephen J. Dubner. The authors write that this likely is because getting a few extra dollars for a seller doesn't have a sizable impact on the agent's commission. (Bing: What's a typical real-estate agent commission?)
These well-promoted statistics offer no details about why real-estate agents might have such success with their own property, and the authors appear to assume the worst. However, there are some less nefarious reasons why real-estate agents could get a higher price for their own homes. Here is a look at the other side of the coin and what you can learn from it, whether you decide to hire an agent or sell your home yourself.
Making an impression
If strangers walked into your home, what would their first impression be? This is one thing that many people get wrong — even when they use a real-estate agent.
For example, in the A&E television series "Sell This House," potential buyers are videotaped as they tour houses that the homeowners are desperate to sell. As a general rule, homeowners are shocked by strangers' first impressions of their homes. A home is largely a reflection of its owner, so it's hard for an owner to accept that other people find the décor, cleanliness or even the smell of the home distasteful.
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Real-estate agents often are the sounding board for buyers and their complaints about the homes they visit. Therefore, agents are more likely to address important deficiencies in their own homes.
The National Association of Realtors reports that the second-biggest reason a home won't sell is because the homeowner hasn't taken care of details such as ensuring the house is clean and uncluttered, the décor is neutral and the house has been staged to play up its best features. The biggest reason a home won't sell is, of course, the price.
- On our blog, 'Listed': 89% of homeowners would buy again
Evaluating your property
Do real-estate agents really command higher prices when they sell their own homes? In 2005, the NAR responded to this question, but few data are available beyond what was collected for "Freakonomics," it could not deny that the book's data may be true.
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One of the top reasons for this, according to real-estate news provider Realty Times, is that agents know how to evaluate a property in terms of what is likely to garner the highest resale price. Therefore, they are likely to analyze the resale values of the properties they buy for themselves in an attempt to ensure a higher resale value.
Setting a price
According to the NAR, people selling their homes often choose a price based on need, ego or greed. Particularly in a tough real-estate market, sellers often want to price their homes based on how much they need to get out of the sale in order to purchase a new property.
Unfortunately, what a seller needs to make on a property has nothing to do with market conditions, which are generally governed by supply and demand, among other economic factors.
The same goes for sale prices that are dictated by ego or greed. Just because a neighbor's house sold for an attractive price doesn't mean yours should, as well, unless your home is more valuable or market conditions have changed.
Read: Sell the house as is or fix it?
Accepting an offer
The final piece of the puzzle in selling a house is deciding which offer to take. Levitt and Dubner say that their data suggest that agents "hold out" for a higher price on their own homes. Assuming this is true, it is important to remember that when it comes to selling their homes, agents are the decision-makers. When an agent is selling a client's home, the seller is in the driver's seat. The agent must balance the desire to get a price that will please the seller with the need to ensure that the home sells in a timely manner — or at all.
When selling their own homes, agents can afford to gamble that a better offer might come along, even though this plan will often fall through, particularly if the house stays on the market too long. This is similar to when stockbrokers make more money trading for themselves than for you: They are willing to take more risks in their own account than they think are appropriate for a client's account.
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In addition, a common practice for real-estate agents is to relist a home that isn't selling. This is because a listing's "days on market" can affect the price the seller can obtain for the property. When a home sits for too long, buyers assume the price is too high, the sellers must be desperate or something is wrong with the property. This can kill a seller's chance of getting a fair price, and real-estate agents must balance this risk with the seller's desire to hold out for a higher price.
Type "real-estate agents are" into a Google search bar, and among the first options to appear are "scum" and "crooks." This may be why this little fact from "Freakonomics" has had so much staying power, even though it was published more than five years ago.
Perhaps real-estate agents really do sell their own homes for more. But just as with many simple statistics, the data can tell us only that a correlation exists. The reasons are left to speculation.
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