“The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially.”
“There are asterisks. The authors cautioned that they did not know whether the results from Madison applied to the country as a whole; certainly, selling a house without a real estate agent would be harder in a city without a heavily trafficked for-sale-by-owner Web site. The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed.”
One City’s Home Sellers Do Better on Their Own [New York Times]

33 thoughts on “JustQuotes: San Francisco Isn’t Madison. Right?”
  1. It was pretty obvious that an agent on the buyer side generally adds increasingly less value as alternative sources of information (e.g. socketsite) proliferate. Looks like the value added by a seller’s agent is also now diminishing to perhaps negative returns.

  2. Who cares about Madison, Wisconsin? I am not in the real estate business, but just like the first time I tried to sell my car on my own a few years ago, I vowed I would never do it again. We are on house # 4 now, and I would never dream of buying or selling a property without the expertise of a real estate agent. The amount of commission they earn for the transaction is well worth the hassle. If you try selling on your own at least once, and it turns out to be a disaster, you learn your lesson. Our first home fell out of escrow twice during the listing period, and there is no way that I could have dealt with it on my own or navigated around the problems and issues with an agent. To me, FSBO’s look desperate, and seem like a nightmare to try and deal with. The general idea on the street is you can lowball a FSBO just like you can lowball a person trying to sell their own car. Anyway, you get what you pay for!

  3. That was meant to read ‘our first home fell out of escrow twice during the listing period, and there was no way that I could have dealt with it on my own or navigated around the problems and issues without the expertise of an agent’… you guys know what I meant.
    The San Francisco Real Estate market is not for the faint of heart, and certainly not something one should navigate on their own. Unless, of course, you want to appear desperate.

  4. A buyer’s agent is actually one of the best resources a buyer could work with when purchasing a home.
    #1. The buyer’s agent strategizes and naviagates the transaction for the buyer
    #2. When I hear someone say thet are going to represent themselves on the buy-side – I can’t understand why? It is a sign of their true lack of knowledge and they most def need some professional guidance.
    #3. Lastly, Buyer’s don’t pay their agents – the commission comes from the sellers.

  5. I used a Buyer’s agent last time I bought, but I am increasingly unconvinced of the value they add beyond my own knowledge and the information that can be accumulated from the web. I’m sitting on the fence as to whether I’ll use an agent for my next purchase.

  6. I lived in Madison for seven years and during most of the time covered by this study. The market is certainly different than here in S.F.- almost exclusively single family homes and a lot of new construction on the outer edges of the city. Many neighborhoods were almost exclusivly FSBO because of how easy it was to sell- large homes, big yards, great schools, all for well under 300K in many cases.
    However, I do think that it should be unnecessary to pay a full commission in S.F. If you own a condo in a buidling with enough other units to determine the comps yourself, why do you need to pay 6% to sell it?
    Movingback may have had issues- 2 offers falling through is perhaps a problem with your agent or just plain back luck- but many real esate transactions are straightforward. I agree it probably makes no sense not to use a buyer’s agent unless you are buying through Redfin or from an unrepresented owner, but I was pretty amazed at how little work our agent did to earn his 20K commission for our condo purchase last year. We found the listing and the seller puts together all of the disclosures. I estimate he made $2000/hour on the deal. Not bad work if you can get it.

  7. I could “save money” by washing my own car. But it takes about two hours. A very quick analysis of my time (based on client bill rates and leisure time available) shows that paying $25 ($20 + $5 tip) for a car wash is a great deal. Washing it on my own actually “costs” about $700; paying to have it done, $100 (factoring in drop off and pick up). I know the math here will look silly to some, but it’s actually conservative. Partners in law firms regularly bill over $650/hour. Their time, therefore, is best spent in revenue-generating mode. Not that I’m a lawyer, but I do pay their bills.
    Similarly, I’m not in the real estate business. It’s in my interest to engage someone who is, to work on my behalf. I have an all-consuming job. I can’t take two months off to sell my home. It would also cost me a fortune in terms of lost opportunity and momentum.
    If you work with the right person, having a selling agent is a tremendously wise investment.

  8. To amused – good points! That’s the reason that I never eat food not prepared in a restaurant. Also, I never fill up my car tank (let the professionals do it). I also don’t go shopping for anything (I hire a personal shopper). My time is just too damn valuable.

  9. JT –
    To be clear… if I found washing my car enjoyable or cathartic, I would do it. I don’t. Let me guess: you make your own soap, shear your sheep and weave their wool into clothing of your won design, and grow all of your own fruits and vegetables, right?
    I do enjoy cooking. So I do. I don’t enjoy washing cars. So I don’t.
    It is about choice, and yes: my time is too valuable to spend either washing my car or selling a home. Not everybody is in this camp.

  10. Comparing selling a condo to a purchasing a car wash is absurd. I’m not saying an entire 6% commission can be avoided, but you can use a flat fee listing service that will handle everything except the open house for $3k, and most buyer’s agents will take a 2% commission. That’s 25K savings on a $700k sale.

  11. No, our issues were not with our agent — but rather with the 2 sets of purchasers that fell out of escrow on our property — one buyer was unrepresented, which was a mess — and the other set of buyers and their agent had our listing agent doing all of the work. In the end their loan fell through and we were able to keep their escrow deposit as damages, as outlined in the purchase contract. This was a very complicated transaction and could not have been navigated between parties who were not experts in the business.
    We have used buyer’s agents to purchase every property thus far as well, and the experiences have all been just as professional, and we have felt each and every time they have more than earned their share of the commission. In one instance we were 11 out of 12 offers on one particular property and our buyer’s agent was instrumental in helping us come out on top in the bidding process.
    I suppose if you have one very easy transaction where you found the property yourself without any assistance whatsoever, there were no other offers other than your own, and there were no issues negotiating with the seller or listing agent, no issues with the home inspection, loan or escrow process, then it would appear the value of having a buyer’s agent help guide and navigate you through the process would seem like a waste of the seller’s money. But why complain, if you are not paying for the buyer agent’s services? The commission is earned from the seller, and the seller’s asking price is reflected as such. We have not found that during any of our multiple sale & purchase transactions, in San Francisco and Washington DC, that we would want to nor care to navigate any of it without the use of a listing agent or buyer’s agent. When it comes to selling a property, I can’t imagine why anyone would not use a local, well-respected, and well-seasoned agent who comes highly recommended by peers. You have to pick the right agent — not just someone off the street. I suppose if you are a do-it-yourself person about everything, then you will approach everything with a do-it-yourself attitude — including buying and selling property — however, if you have had as many good experiences as we have, and have made as much money as we have in the process, then you would never approach buying or selling a property in such a challenging market on your own.

  12. Movingback,
    I’m in complete agreement with you that a Realtor provides value in the real estate transaction. What we disagree on is how that value is determeined (percentage of sale price, fixed fee, or combination). Why, for example should it cost twice as much to sell a $2 million dollar condo than a $1 million dollar single family home?
    For a very cogent discussion of the issues you raise regarding Realtors and fees I suggest you explore http://www.freakonomics.com/blog/
    Cary

  13. Cary,
    Good point — I am not saying we have agreed to a 6% commission each time we have listed and sold a property — I think you have to approach each listing transaction separately, and based on the market in your specific location at that time, and how much marketing the listing agent actually does, you can determine if 6% is fair or not. In a hot market where you are assured you will get multiple offers within days of a property hitting the market and without any marketing or advertising being done, other than perhaps a brochure or flyer to give to prospective buyers and agents, then 6% might be a bit high. However, if you happen to have a property that is not likely to sell quickly, or you are selling in a market that is a buyer’s market at the time, rather than a seller’s market, then it is likely you will need to find work with a listing agent on a reasonable commission that allows the agent to spend a good portion of the money marketing the property as much as possible — top notch brochures and virtual tours, as much exposure on local MLS systems and websites as possible, local advertising and marketing if possible. And don’t forget about staging costs, in a buyer’s market. We have had properties that have been challenging to sell where we have had to pull out all of the stops and others that have sold in a matter of days, driven by a crazy market and multiple offers. All of these factors need to be taken into consideration when deciding on commissions and fees, as well as whether you are comfortable using a brokerage that is known for flat fee or deep discounted service. We have always been firm believers in the ‘you get what you pay for’ philosophy, and because a lot of people made a lot of money during the crazy market most coastal cities have had in the past several years, the flat-fee and discount brokerages made some inroads into the traditional real estate market, especially when people thought they were throwing their money away when they could get their property sold in a matter of days without lifting a finger. When the market becomes more balanced, slow, stable, challenging, bust, or whatever you want to call it, where is the value of a flat-fee or discount brokerage?
    I personally would never want a ZipRealty, Assit-2-Sell, or any ‘ByOwner’ sign in front of one of my properties — but again, it’s a matter of personal opinion and experiences, I suppose.

  14. I have to laugh every time someone tells me the seller is paying the commission, so I as a buyer shouldn’t care.
    If I walk in unrepresented, and I’m 1.5% UNDER the high bidder, the seller’s agent will shave $1 more than 2% off their 5%, walk away with around 3% (which is more than they would take if the higher offer is from a represented buyer) and everyone wins: the sellers agent gets 0.5% more, the owner gets an extra half of one percent, and the buyer pays 2% less.
    So in the end, the BUYER ends up paying most of the buyer’s agent’s commission. The seller never pays it. The buyer pays it in the form of a higher price.

  15. I beg to differ. I have yet to see a for sale by owner (FSBO) seller who wanted or was willing to pass the commission savings onto the Buyer. On the contrary, they more often have an overinflated idea of what their home is worth and want to, like all sellers keep every penny in their pocket. Additionally a Buyer is less likely to get the Full disclosures necessary and a lesser ability to negotiate for credits during inspections.
    Also there’s a VERY good reason most FSBO’s end up using an agent after trying it on their own.

  16. not true 2:57 — the study that is the subject of this thread (the only such study I’m aware of) indicates that FSBOs are right to have an inflated idea of what their home is worth. FSBOs get a higher price for the sale than those who use an agent.
    We can argue the pros and cons of using an agent, but until someone shows me contrary evidence (not anecdotes), this study shows that one of the cons is you’ll generally get less net money for the sale with an agent.

  17. tipster beat me to it, but, as usual, he’s completely right. It’s a closed system, gang. All transaction fees get netted out of the funds flowing from the buyer to the seller. So it’s ignorant to think the seller paid the 3% or 6% or whatever. That commission, along with loan origination costs and any “free incentives” you may get are all rolled into your loan. Negotiate accordingly.

  18. anon, there are no studies, because the Realtor Mafia wouldn’t allow something like that to happen! Allow a study that might show how much Americans are ripped off by the Realty Trusts and the Gangs of the MLS? Never!

  19. 4:15 anon – my post at 2:47 was addressing that Buyers will pay less for using no agent in a FSBO specifically. Again, I have yet to see a fsbo seller willing to pass their savings on. In fact I generally see the Buyers losing (often big time) where there is no agent negotiating on their behalf by dealing with Seller’s directly.
    for sellers ready willing and able to sell it themselves I say god bless you. Help U Sell and Craigs list is all for you. By the time you close you will have more than earned the commission you saved and if you are upfront and honest with any luck you won’t get sued for non-disclosure.
    It’s been addressed many times in many ways but you’ll save a hell of a lot of money by building your own home, your own furniture, making your own clothes, fixing your own car, writing your own wills, representing yourself in any legal proceedings…go for it! No one is trying to stop anyone from doing it themselves.
    Wish I had it handy but last stats I read was close to 80% of FSBO’s end up listing with an agent at the end of the day. For the 20% that make it…you friggen earned that savings BIG time.

  20. also the study stated the fbso’s got a higher price only when you factored in the commission savings so in reality they realized a higher net rather than a higher sales price.
    and for those that have the time, energy and wherewithall to do it hell yeah go for it. After 13 years in the business I applaud that because I know exactly how much work it is and the value I bring to the table as a result. I could save $30k painting my own building but I sure as hell am not going to do it…painting’s not that hard after all.

  21. For those of you who have never bought or sold property, and have only rented for your entire lives, then I assume most of your comments are pure speculation, based on what you know about buying and selling property from what you read in the media, hear your friends talk about, and read on blogs such as this. Unless you have bought and sold a few properties of your own, and made money on them, as we have, had some that have been incredibly easy and others that have been difficult and stressful all the way to the settlement table, then you are free to speculate all that you want. The comment about the buyer paying the buyer’s agent commission is just stupid. And what exactly is a ‘Realtor Trust’ or ‘Gangs of the MLS’? It seems as if a lot of you are just angry because you can’t get your piece of the pie — and don’t really know what you are talking about. Until you have bought or sold property of your own, used the professional services that are available to you, and seen how the process really works, other than jumping on CraigsList to see about an Open House in your favorite neighborhood, or wandered by a FSBO or ‘Assist-2-Sell’ listing, and seen the hoards of people inside drooling over the property, and automatically assuming that people who are buying and selling real estate are getting ripped off and wasting their money and time, then why don’t you just continue to sit it out while the rest of us entertain you? Then you can criticize, like you know what is going on, on blogs like this one.
    Rule # 1 – all Real Estate is negotiable. Granted, it might not be for tire-kickers who are looking for a bargain or a lower price, but it’s all negotiable, folks. If you have rented all of your life, and will continue to rent, then keep paying someone’s mortgage, and be happy to observe from the sidelines.

  22. Tipster,
    you should try your philosophy next time you find a property that you like, and want to make an offer on. Report back to us and let us know if your formula worked or not.

  23. I have no problem agents being paid. I have a problem with buyer’s agent being paid according to seller’s contract with the listing agent. How stupid is that? I believe the buyer’s agent fee should be negociated between the buyer and the agent, whether it is fixed fee, percentage or whatever, let the market decide.

  24. JT,Not True,Movingback,
    I am a inactive Realtor. In a study I am aware of, Realtors, selling their own property, got slightly more money then when selling their client’s property. The explanation makes perfect sense and illustrates one of the weaknesses of the existing “standard” MLS model. With a shared 6% commission, all parties are splitting the commission. Thus the selling agent may be getting ONLY 1.5% of the selling price. This is not enough incentive to risk losing an existing sale. For example, you have an offer of $950K on a $1M property. The selling agent’s commission is $14,250 (1.5% of $950K). To hold out for $1M, ~$50K more to the seller, the agent risks $14,250 for a POTENTIAL $15K (1.5% of $1M). Most agents are unwilling to make the additional effort for $750. (Who knows how long, if ever, that higher offer will come!) The $50K is significant to the client, but not to the agent.
    Re: Not using a flat fee broker during a “balanced” or “buyers” market: Why not use the “savings” to lower your price and thereby, “move to the head of the class”? IMO, the real estate market is competitive and value, determined by price, is the major factor in at least 80% of sales. Certainly, make your property look as good as you can, but fancy brochures and extra advertising are largely cosmetic and a waste of money. Ask yourself, when you bought your last property, was it the brochure or the ad in the weekend paper that sold you on the property? I’m sure, if you are honest, your real answer is the listing in the MLS and seeing the property with your own eyes were the factors that sold you.
    Cary

  25. “Gangs of the MLS” is referring to those places where a realtor or agancy has decided to lower their commission and then been blackballed from the MLS. Happened several places in Texas, New Jersey, and Florida.

  26. I wish Foxtons would come over here from London. It would show how out of date, lazy, and cheap most Bay Area Real Estate firms are in providing clients “professional service”. Foxtons was started in 1981, and is already the U.K.’s #1 real estate agency. I love their cars they take clients in, and their real estate cafes where you can stop in, get tea, and look over listings in a warm atmosphere, no pressure. They have easy to use websites also.

  27. The nember one reason why you should use a full service broker (in my opinion) is liability. Sure, you can go to a FSBO site and pay your $500 and get a pack of forms to fill out. Will you know how to complete them? What about local ordinances, which we have many of in SF. Who is going to insure the transaction? It may sound esoteric, but think about what could happen after you’ve sold the house and the new buyers discover that, unknown to you, the house accross the street is about to be torn down and replaced with a four story apartment building? You may have checked a box on the Transfer Disclosure Statement that said there were no plans to construct a building that would block the view. However, you never opened that piece of junk mail from the City saying your neighbor had just pulled a permit. If you had a full service broker, thier E&O coverage would handle this.
    Most FSBO’s are owned by cheap wannabees who know little to nothing about what they are doing. I have done one FSBO sale as the buyer’s agent and it was a complete mess. The sellers were mad that they were paying me anything and I caught them on several points where they failed to disclose defects. Quite frankly, they are damn lucky my buyers didn’t sue them as I had suggested. I do not show them [FSBO’s] now, but make my clients aware of them.
    I agree with the general perception that most Realtors are idiots. (I work in an office with about five great agents, 10 mediocre ones and a cast of lesser known losers). Anyone who can get 70 questions out of 100 can get a California License. When you are ready to sell, interview more than one Realtor and ask for references. Pure and Simple.
    M.R.

  28. MR, I don’t disagree that (some) realtors offer a great service. What I have a problem with is the amount charged – and the tactics they use to continue charging that much. Most realtors I know agree that the prices charged in this state especially are ridiculous. Does it really cost 10 times as much to sell a 2 million dollar home here as it does a $200,000 home in Idaho? Of course not! In fact, more time is probably spent on the Idaho home because the market is so crappy comparatively.
    One agent I know here sells about 6-8 homes a year and makes a killing. He moved here five years ago from Washington state, where he used to be the listing agent for 10-15 homes at all times, and usually sold around 35-40 a year – and made significantly less. He has actually tossed around the idea of setting up a discount brokerage – but is scared to death that he would be blackballed and possibly worse. To realty agencies and realtors, messing with the status quo is the third rail – touch it and die.

  29. M.R.,
    We can all point to anecdotal evidence to prove a point. If every FSBO were as cavalier with the truth as your experience, no one would be willing to enter into a FSBO transaction. The facts are, about 20% of all transactions are FSBO and most close without any more problems than a traditional MLS closing.
    Nevertheless, I think your FSBO “solution” is genius, let your client’s decide.
    Cary

  30. Cary;
    Please don’t get me wrong. If you feel that you are able to sell your own home yourself, then do it. It’s pretty much the same idea as doing your own legal work.
    Most people on this site are highly educated professionals and could probably sell thier own properties in a hot market.
    Another point to consider is that when it comes to marketing, everything is negotiable. I always give my repeat customers a sizeable break when they give me repeat business and/or refer clients to me. The same holds true if I get a property into contract in under a week.
    M.R.

  31. Cant resist the temptation to point out a MAJOR flaw in Freakonomics stating Realtors get a higher price for their own listings and stay on the market longer.
    That study does not take into account the price reduction generally accompanying a long time on the market. That has always bugged me not to mention the stats they have citing more children PERCENTAGE WISE are killed in pools than by guns. Of course because there are fewer pools than guns so as a percentage of course there are more deaths than pools.
    Many many flawed stats in that book, Cary I believe Freakonomic’s looking at the market in Chicago is the stat you are referring to in your post.

  32. Not True,
    I am refering to the Chicago study. The MAJOR flaw you speak of is unclear in my mine. The two groups being compared, Realtor’s owm listings and the general public are subject to the same MLS rules. Are you saying the Realtor’s own listings were reduced more (or less) by virtue of being on the market longer?
    Cary

Leave a Reply

Your email address will not be published. Required fields are marked *