Does Your Real Estate Agent Go the Last Mile?

"Fabulous 4BR, 2.5 bth Col., nwr kit, high ceils, won't last! $349,900."

Real estate ads can be hard to decipher -- and even more so if it's your house that's for sale. Is that a good price? Are you getting what your house is worth? You probably have no idea.

That's why you go to a real estate agent. If you live in Danbury, you might do quite well to hire Allyson Bernard. She's been selling homes for 23 years, following in the footsteps of her father and her grandmother.

"We definitely trust her, and that's pretty important to us," said Phil Mawson, an electrical engineer who is using Bernard to sell his ranch house. Five years ago she helped the Mawsons buy the house, and since then they believe it has doubled in value.

No question, real estate agents work hard for their commissions. But will they always get you the best price?

Steven D. Levitt and Stephen J. Dubner, the authors of "Freakonomics," say it may not always be worth the agent's trouble.

"You want to hold out for the best offer," said Levitt. "Your agent wants to churn through the properties and make a quick sale.

"And that's where, on the margin," he said, "your real estate agent's incentives and your incentives as a home seller are not well aligned."

Here's why, according to the authors:

Let's say you put your house on the market, and get some promising offers. They lead you to believe that if you held out for another week, another offer might come in for, say, $10,000 more.

That's good money, even after you pay the agents' commission, typically 6 percent, or $600.

But here's the problem: Of that $600, half usually has to go to the buyer's agent -- and of the $300 left, half has to go to your agent's firm. So your agent only gets $150.

"If her incentive to hold out for an extra couple of weeks to get an extra $10,000 for you, if her incentive is $150, that's not much of an incentive," said Stephen Dubner.

To test that theory, Levitt and a University of Chicago colleague, Chad Syverson, studied 100,000 home sales, and report that when agents sold their own property, they kept their houses on the market almost 10 days longer, on average, and made 3.7 percent more money.

"It's human nature that when your own best interests are at stake, you work harder, you're more careful, you think more intelligently about the situation," said Levitt.

"I disagree 110 percent," said Bernard, the real estate agent in Danbury. "Many times, I may say, 'Well, you have the option to wait and we may get a better price,' and the homeowner will chose not to."

The National Association of Realtors says Levitt's study is flawed. Real estate agents are more likely than the general public, the association argues, to own houses strictly as investment properties -- and in those cases, they can wait for a better price because they are in no rush to move. Levitt says he was careful to control for those cases.

The association also says agents cannot afford to shortchange their clients. They need clients' goodwill, so that they will come back to them as repeat customers the next time they move, and so that they will refer friends.

"Their reputation is number one on their minds," said David Lereah, chief economist for the NAR in Washington. "So they've got to do the best job possible."

Levitt and Dubner say that's true -- but they say the larger reality is that if your agent does not get you the best possible price, you may never know. The agent has access to more information about the local real estate market than you do.

Finally, says Dubner, there are some basic laws of behavioral economics.

"We're not saying that real estate agents are cheaters, we're saying that they're human beings. Human beings respond to incentives."

Click here to read Ned's blog on this topic.

-- This embed didnt make it to copy for story id = 1194101.
null
Join the Discussion
You are using an outdated version of Internet Explorer. Please click here to upgrade your browser in order to comment.
blog comments powered by Disqus
 
You Might Also Like...