Use An Agent for Free When Selling

Mike Cooke August 13, 2017 Buying Selling

Use An Agent for Free When Selling

Use An Agent for Free When Selling

What if you can pay an agent to help with the sale of your home and walk away from the closing table with more money in your pocket than if you sold it yourself without agent assistance?

That is exactly what you can do according to a study released August 1st by Collateral Analytics (CA).

The CA study shows that homes sold with the help of real estate agents sell for 5.02% to 7.26% more than homes sold directly by owners without agent assistance.

According to national surveys, 5% to 6% is the fee most commonly paid by sellers to their agents. The CA study shows that agents achieve a higher sales price that more than offsets the fee charged to a seller.

In contrast, DIY sellers have the worst of both worlds. They do all the work of marketing, showing, negotiating and closing on their homes and put less money in their pockets than their counterparts who hire an agent. They save an agent fee of 5% to 6% but get 5% to 7% less for their house, making them worse off in some cases than if they hired an agent to handle the transaction.

Furthermore, the CA study has no way of evaluating an additional factor that may cost the FSBO seller 2.5% to 3% more in out-of-pocket closing costs than costs paid by sellers utilizing an agent (FSBO is the acronym of For Sale By Owner and is pronounced “fizz-bo”).

More on that higher closing cost issue in a moment, but let’s first look at why the CA research has more credibility than prior studies:

  • Collateral Analytics is not a real estate brokerage firm or real estate industry advocacy group. CA creates “automated valuation models” (AVMs) that predict the value of real estate based on public information. The Zillow Zestimate is the most well-known AVM.
  • The CA study included a massive sample of homes. It included 1.35 million residential properties sold in 770 different zip codes nationwide from January 1, 2016 to June 30, 2017. This sample represents approximately one in every six homes sold during that 18-month time frame. Prior research on this topic was limited to single metropolitan areas or involved very small sample sizes.
  • CA used three different methodologies instead of just one and their methodologies reduced or eliminated problems with “selection bias” that have plagued prior efforts to investigate this matter.

One of the methodologies used is particularly intriguing. CA looked at the sale price of FSBO and agent assisted sales compared to CA’s estimate of value for each home. If 123 Main Street was a FSBO, they checked its actual sale price against CA’s predicted value from its automated valuation model. Likewise, if 789 Center Drive was an agent assisted sale, its actual selling price was compared to the AVM’s predicted value.

The findings showed that homes sold by agents tended to bring prices above predicted value, while FSBO properties typically sold at a discount to predicted value. The differential was computed for all properties in each zip code and the average differential in all 770 zip codes was 5.626% in favor of the agent assisted owners. Owners using an agent got, on average, a 5.626% higher sales price than sellers going it alone.

The two additional methodologies used in the CA study indicated higher sale prices for agent assisted transactions of 5.02% and 7.26%.

The seller using an agent got 5.02% to 7.26% more for their property, which more than offset the 5% to 6% fee paid to the agent.

Let’s go back to that one additional factor the CA study did not evaluate that might make the differential between FSBO and agent assisted sellers even larger: How often do FSBO sellers end up paying a fee to a buyer’s agent that brings a buyer for their property?

Since 92% of resale buyers use a real estate agent to help with their purchase, it is likely that many or most FSBO owners end up paying the fee due to the buyer’s agent. Buyer agent fees commonly range from 2.5% to 3.0% of the purchase price of a property, according to consumer surveys.

Sellers using an agent don’t face this expense. The seller’s agent pays the buyer’s agent out of the total 5% to 6% fee collected from the seller. The FSBO seller may, as a practical matter, end up paying the fee of the buyer agent to facilitate the transaction. Many FSBO sellers actually offer to do so as part of their marketing so as to entice agents to show their properties.

Bottom-line, FSBOs get 5% to 7% less for their home on average and may cough up another 3% in closing costs to pay the buyer’s agent. They can easily be at a 10% deficit to their agent assisted brethren.

The sellers using an agent pay 5% to 6% in agent fees and end up being better off by 1.5% to 5% in net money in their pocket when the deal is done because (1) They get a 5% to 7% higher sales price that more than covers their agent fee and (2) They avoid a separate payment of 2.5% to 3.0% to the buyer’s agent.

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