Does Your Real Estate Agent Go the Last Mile?

DANBURY, Conn., Oct. 7, 2005 — -- "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.